COMMERCE ENERGY GROUP, INC. 2006 STOCK INCENTIVE PLAN Restricted Share Award Agreement (for U.S. Employees)
Exhibit 99.1
COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
2006 STOCK INCENTIVE PLAN
Restricted Share Award Agreement
(for U.S. Employees)
(for U.S. Employees)
Award No.
|
1 | |||
Date
|
June 8, 2006 | |||
In consideration of, and as a reward for, your past services rendered to the Company and to
provide you with an incentive for on-going superior performance (which has a value exceeding the
par value of the Restricted Shares awarded pursuant to this Agreement), you are hereby awarded
Restricted Shares subject to the terms and conditions set forth in this Restricted Share Award
Agreement (“Award Agreement” or “Award”), and in the Commerce Energy Group, Inc.
2006 Stock Incentive Plan (the “Plan”), which is attached hereto as Exhibit A. A
summary of the Plan appears in its Prospectus, which is attached as Exhibit B. You should
carefully review these documents, and consult with your personal financial advisor, in order to
fully understand the implications of this Award, including your tax alternatives and their
consequences.
By executing this Award Agreement, you agree to be bound by all of the Plan’s terms and
conditions as if they had been set out verbatim in this Award Agreement. In addition, you
recognize and agree that all determinations, interpretations, or other actions respecting the Plan
and this Award Agreement will be made by the Board of Directors (the “Board”) of Commerce
Energy Group, Inc. (the “Company”) or and Committee appointed by the Board to administer
the Plan, and shall (in the absence of manifest bad faith or fraud) be final, conclusive and
binding upon all parties, including you, your heirs and representatives. Capitalized terms are
defined in the Plan or in this Award Agreement.
| 1. Specific Terms. Your Restricted Shares have the following terms: | ||
Name of Participant
|
▇▇▇▇▇▇ ▇. ▇▇▇▇ | |
Number of Shares
Subject to Award
|
40,000 | |
Purchase Price per Share (if applicable) |
Not applicable. | |
Award Date
|
June 8, 2006 | |
Vesting
|
10,000 Restricted Shares to vest on the date hereof, 10,000 Restricted Shares to vest on January 1, 2007, 10,000 Restricted Shares to vest on January 1, 2008 and 10,000 Restricted Shares to vest on January 1, 2009; subject to acceleration as provided in the Plan and in Section 2 below, and to your Continuous Service not ending before the vesting date. | |
Lifetime Transfer
|
þ Allowed. | o Not allowed. | ||||
| Deferral Elections | þ Allowed in accordance with Section 8(g) of the Plan. | o Not allowed. | ||||
2. Accelerated Vesting; Change in Corporate Control. To the extent you have not previously
vested in your rights with respect to this Award, your Award will become –
| o | ___% vested if your Continuous Service ends due to your death or “disability” within the meaning of Section 409A of the Code; |
| o | ___% vested if your Continuous Service ends due to your retirement at or after you have attained the age of ___ and completed at least ___ full years of Continuous Service; |
| o | according to the following schedule if your Continuous Service ends due to an Involuntary Termination that occurs within the one year period following a Change in Control: |
| Date on which Your Involuntary Termination | Portion of Your Award | |||
| Occurs (by reference to Date of Award) | As to which Vesting Accelerates | |||
Before 1st Anniversary |
0 | % | ||
Between 1st and 2nd Anniversary |
— | % | ||
After 2nd Anniversary |
— | % | ||
3. Investment Purposes. You acknowledge that you are acquiring your Restricted Shares for
investment purposes only and without any present intention of selling or distributing them.
4. Issuance of Restricted Shares. Until all vesting restrictions lapse, any certificates
that you receive for Restricted Shares will include a legend stating that they are subject to the
restrictions set forth in the Plan and this Award Agreement. Certificates shall not be delivered
to you unless you have made arrangements satisfactory to the Committee to satisfy tax-withholding
obligations. The certificates evidencing such Restricted Shares that will be issued will bear the
following legend that shall remain in place and effective until all other vesting restrictions
lapse and new certificates are issued:
“The sale or other transfer of the Stock represented by this certificate, whether voluntary,
involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in
the Commerce Energy Group, Inc. 2006 Stock Incentive Plan, and in any rules and administrative
procedures adopted pursuant to such Plan and in a related Award Agreement. A copy of the Plan,
such rules and procedures and such Award Agreement may be obtained from the Secretary of Commerce
Energy Group, Inc.”
5. Unvested Restricted Shares. The Company will hold such Restricted Shares in escrow
until vesting occurs. You will be reflected as the owner of record on the Company’s books and
records of any Shares issued pursuant to this Award Agreement. The Company will hold the stock
certificates for safekeeping until such Shares have become vested and non-forfeitable. You must
deliver to the Company, as soon as practicable after the date any Shares are issued, a stock power,
endorsed in blank, with respect to any such Shares. If you forfeit any Shares, the stock power will
be used to return the certificates for the forfeited Shares to the transfer agent for cancellation.
As the owner of record of any Restricted Shares you qualify to receive pursuant to this Award
Agreement, you will be entitled to all rights of a stockholder of the Company, including the right
to vote Shares; subject, however, to the provisions of Section 6 hereof with respect to any cash or
stock dividends that are paid between the date of this Award and your receipt of Shares pursuant to
a vesting event, subject in each case to the treatment of the Award upon termination of employment
before the particular record date for determining stockholders of record entitled to the payment of
the dividend or distribution. To the extent such dividend is paid in stock, such stock shall be
subject to the same restrictions contained in Section 1.
6. Dividends. When Shares are delivered to you or your duly-authorized transferee pursuant
to the vesting of the Shares, you or your duly-authorized transferee shall also be entitled to
receive, with respect to each Share issued, an amount equal to any cash dividends (plus simple
interest at a rate of five percent per annum, or such other reasonable rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were declared and paid to the
holders of Shares between the Grant Date and the date such Share is issued. To the extent that
your Continuous Service ends before vesting of the Shares, you will forfeit all dividends (whether
paid in cash or in stock) attributable to all such Shares.
7. Long-term Consideration for Award. The Participant recognizes and agrees that the
Company’s key consideration in granting this Award is securing the long-term commitment of the
Participant to serve as an officer of the Company who will advance and promote the business
interests and objectives of the Company and/or its Affiliates (the “Company Group”). Accordingly,
the Participant agrees that this Award shall be subject to the terms and conditions set forth in
Section 25 of the Plan (relating to the termination, rescission and recapture if you violate
certain commitments made therein to the Company Group), as well as to the following terms and
conditions as material and indivisible consideration for this Award:
(a) Fiduciary Duty. During his or her employment with the Company Group the
Participant shall devote his or her full energies, abilities, attention and business time to the
performance of his or her job responsibilities and shall not engage in any activity which conflicts
or interferes with, or in any way compromises, his or her performance of such responsibilities.
(b) Confidential Information. The Participant recognizes that by virtue of his or her
employment with the Company Group, he or she will be granted otherwise prohibited access to
confidential information and proprietary data which are not known, and not readily accessible to
the competitors of the Company Group. This information (the “Confidential Information”) includes,
but is not limited to, current and prospective customers; the identity of key contacts at such
customers; customers’ particularized preferences and needs; marketing strategies and plans;
financial data; personnel data; compensation data; proprietary procedures and processes; and other
unique and specialized practices, programs and plans of the Company Group and their respective
customers and prospective customers. The Participant recognizes that this Confidential Information
constitutes a valuable property of the Company Group, developed over a significant period of time
and at substantial expense. Accordingly, the Participant agrees that he or she shall not, at
any time during or after his or her employment with the Company Group, divulge such Confidential
Information or make use of it for his or her own purposes or the purposes of any person or entity
other than the Company Group.
(c) Non-Solicitation of Customers. The Participant recognizes that by virtue of his
or her employment with the Company Group he or she will be introduced to and involved in the
solicitation and servicing of existing customers of the Company Group and new customers obtained by
the Company Group during his or her employment. The Participant understands and agrees that all
efforts expended in soliciting and servicing such customers shall be for the permanent benefit of
the Company Group. The Participant further agrees that during his or her employment with the
Company Group the Participant will not engage in any conduct which could in any way jeopardize or
disturb any of the customer relationships of the Company Group. The Participant also recognizes
the legitimate interest of the Company Group in protecting, for a reasonable period of time after
his or her employment with the Company Group, the customers of the Company Group. Accordingly, the
Participant agrees that, for a period beginning on the date hereof and ending one (1) year after
termination of Participant’s employment with the Company Group, regardless of the reason for such
termination, the Participant shall not, directly or indirectly, without the prior written consent
of the Chief Executive Officer of the Company, market, offer, sell or otherwise furnish any
products or services similar to, or otherwise competitive with, those offered by the Company Group
to any customer of the Company Group.
(d) Non-Solicitation of Employees. The Participant recognizes the substantial
expenditure of time and effort which the Company Group devotes to the recruitment, hiring,
orientation, training and retention of its employees. Accordingly, the Participant agrees that,
for a period beginning on the date hereof and ending two (2) years after termination of
Participant’s employment with the Company Group, regardless of the reason for such termination, the
Participant shall not, directly or indirectly, for himself or herself or on behalf of any other
person or entity, solicit, offer employment to, hire or otherwise retain the services of any
employee of the Company Group.
(e) Survival of Commitments; Potential Recapture of Award and Proceeds. The
Participant acknowledges and agrees that the terms and conditions of this Section regarding
confidentiality and non-solicitation shall survive both (i) the termination of Participant’s
employment with the Company Group for any reason, and (ii) the termination of the Plan, for any
reason. The Participant acknowledges and agrees that the grant of Restricted Shares in this Award
Agreement is just and adequate consideration for the survival of the restrictions set forth herein,
and that the Company Group may pursue any or all of the following remedies if the Participant
either violates the terms of this Section or succeeds for any reason in invalidating any part of it
(it being understood that the invalidity of any term hereof would result in a failure of
consideration for the Award):
| (i) | declaration that the Award is null and void and of no further force or effect; | ||
| (ii) | recapture of any cash paid or Shares issued to the Participant, or any designee or beneficiary of the Participant, pursuant to the Award; |
| (iii) | recapture of the proceeds, plus reasonable interest, with respect to any Shares that are both issued pursuant to this Award and sold or otherwise disposed of by the Participant, or any designee or beneficiary of the Participant. |
The remedies provided above are not intended to be exclusive, and the Company Group may seek such
other remedies as are provided by law, including equitable relief.
(f) Acknowledgement. The Participant acknowledges and agrees that his or her
adherence to the foregoing requirements will not prevent him or her from engaging in his or her
chosen occupation and earning a satisfactory livelihood following the termination of his or her
employment with the Company Group.
8. Section 83(b) Election Notice. If you make an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, with respect to the Shares underlying your Restricted
Shares (a “Section 83(b) election”), you agree to provide a copy of such election to the
Company within 10 days after filing that election with the Internal Revenue Service. Exhibit
C contains a suggested form of Section 83(b) election.
9. Designation of Beneficiary. Notwithstanding anything to the contrary contained herein
or in the Plan, following the execution of this Award Agreement, you may expressly designate a
beneficiary (the “Beneficiary”) to your interest, if any, in the Restricted Shares awarded
hereby. You shall designate the Beneficiary by completing and executing a designation of
beneficiary agreement substantially in the form attached hereto as Exhibit D (the
“Designation of Beneficiary”) and delivering an executed copy of the Designation of
Beneficiary to the Company.
10. Restrictions on Transfer. This Award Agreement may not be sold, pledged, or otherwise
transferred without the prior written consent of the Committee. Notwithstanding the foregoing, the
Participant may transfer this Award (i) by instrument to an inter vivos or testamentary trust (or
other entity) in which each beneficiary is a permissible gift recipient, as such is set forth in
subsection (ii) of this Section, or (ii) by gift to charitable institutions or by gift or transfer
for consideration to any of the following relatives of the Participant (or to an inter vivos trust,
testamentary trust or other entity primarily for the benefit of the following relatives of the
Participant): any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, domestic partner, ▇▇▇▇▇▇▇, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. Any
transferee of the Participant’s rights shall succeed and be subject to all of the terms of this
Award Agreement and the Plan.
11.
Income Taxes and Deferred Compensation. The Participant is solely responsible and
liable for the satisfaction of all taxes and penalties that may arise in connection with this Award
(including any taxes arising under Section 409A of the Code), and the Company shall not have any
obligation to indemnify or otherwise hold any Participant harmless from any or all of such taxes.
The Committee shall have the discretion to unilaterally modify this Award in a manner that (i)
conforms with the requirements of Section 409A of the Code, (ii) that voids any election of the
Participant to the extent it would violate Section 409A of the Code, and (iii) for any distribution
election that would violate Section 409A of the Code, to make distributions pursuant to the Award
at the earliest to occur of a distribution event that is allowable under Section 409A of the Code
or
any distribution event that is both allowable under Section 409A of the Code and is elected by the
Participant, subject to any valid second election to defer, provided that the Committee permits
second elections to defer in accordance with Section 409A(a)(4)(C). The Committee shall have the
sole discretion to interpret the requirements of the Code, including Section 409A, for purposes of
the Plan and this Award Agreement.
12. Notices. Any notice or communication required or permitted by any provision of this Award
Agreement to be given to you shall be in writing and shall be delivered personally or sent by
certified mail, return receipt requested, addressed to you at the last address that the Company had
for you on its records. Each party may, from time to time, by notice to the other party hereto,
specify a new address for delivery of notices relating to this Award Agreement. Any such notice
shall be deemed to be given as of the date such notice is personally delivered or properly mailed.
13. Binding Effect. Except as otherwise provided in this Award Agreement or in the Plan,
every covenant, term, and provision of this Award Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legatees, legal representatives,
successors, transferees, and assigns.
14. Modifications. This Award Agreement may be modified or amended at any time, in
accordance with Section 15 of the Plan and provided that you must consent in writing to any
modification that adversely alters or impairs any rights or obligations under this Award Agreement.
15. Headings. Section and other headings contained in this Award Agreement are for
reference purposes only and are not intended to describe, interpret, define or limit the scope or
intent of this Award Agreement or any provision hereof.
16. Severability. Every provision of this Award Agreement and of the Plan is intended to
be severable. If any term hereof is illegal or invalid for any reason, such illegality or
invalidity shall not affect the validity or legality of the remaining terms of this Award
Agreement.
17. Counterparts. This Award Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
18. Plan Governs. By signing this Award Agreement, you acknowledge that you have received
a copy of the Plan and that your Award Agreement is subject to all the provisions contained in the
Plan, the provisions of which are made a part of this Award Agreement and your Award is subject to
all interpretations, amendments, rules and regulations which from time to time may be promulgated
and adopted pursuant to the Plan. In the event of a conflict between the provisions of this Award
Agreement and those of the Plan, the provisions of the Plan shall control.
19. Governing Law. The laws of the State of Delaware shall govern the validity of this
Award Agreement, the construction of its terms, and the interpretation of the rights and duties of
the parties hereto.
20. Not a Contract of Employment. By executing this Award Agreement you acknowledge and
agree that (i) any person who is terminated before full vesting of an award, such as the one
granted to you by this Award, could claim that he or she was terminated to preclude vesting; (ii)
you promise never to make such a claim; (iii) nothing in this Award Agreement or the Plan confers
on you any right to continue an employment, service or consulting relationship with the Company
and/or its Affiliates nor shall it affect in any way your right or the right of the Company and/or
its Affiliates, as applicable to terminate your employment, service, or consulting relationship at
any time, with or without Cause; and (iv) the Company would not have granted this Award to you but
for these acknowledgements and agreements.
BY YOUR SIGNATURE BELOW, along with the signature of the Company’s representative, you and the
Company agree that the Restricted Shares are awarded under and governed by the terms and conditions
of this Award Agreement and the Plan.
| COMMERCE ENERGY GROUP, INC. | ||||
| By: | /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇ | |||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇ | ||||
| Chief Executive Officer | ||||
| PARTICIPANT | ||||
| The undersigned Participant hereby accepts the terms of this Award Agreement and the Plan. | ||||
| By: | /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇ | |||
| Name of Participant: ▇▇▇▇▇▇ ▇. ▇▇▇▇ | ||||
EXHIBIT A
COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
1. Establishment, Purpose, and Types of Awards
Commerce Energy Group, Inc. (the “Company”) hereby establishes this equity-based incentive
compensation plan to be known as the “Commerce Energy Group, Inc. 2006 Stock Incentive Plan”
(hereinafter referred to as the “Plan”), in order to provide incentives and awards to select
employees, directors, consultants, and advisors of the Company and its Affiliates.
The Plan permits the granting of the following types of awards (“Awards”), according to the
Sections of the Plan listed here:
| Section 6 | Options | |||
| Section 7 | Share Appreciation Rights | |||
| Section 8 | Restricted Shares, Restricted Share Units, and Unrestricted Shares | |||
| Section 9 | Deferred Share Units | |||
| Section 10 | Performance Awards |
The Plan is not intended to affect and shall not affect any stock options, equity-based
compensation, or other benefits that the Company or its Affiliates may have provided, or may
separately provide in the future pursuant to any agreement, plan, or program that is independent of
this Plan.
2. Defined Terms
Terms in the Plan that begin with an initial capital letter have the defined meaning set forth
in Appendix A, unless defined elsewhere in this Plan or the context of their use clearly indicates
a different meaning.
3. Shares Subject to the Plan
Subject to the provisions of Section 13 of the Plan, the maximum number of Shares that the
Company may issue for all Awards is 1,453,334 Shares, provided that the Company shall not make
additional awards under the Commonwealth Energy Corporation 1999 Equity Incentive Plan, as amended
and assumed by Commerce Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan
may be authorized but unissued Shares, or Shares that the Company has reacquired or otherwise holds
in treasury.
Shares that are subject to an Award that for any reason expires, is forfeited, is cancelled,
or becomes unexercisable, and Shares that are for any other reason not paid or delivered under the
Plan shall again, except to the extent prohibited by Applicable Law, be available for subsequent
Awards under the Plan. In addition, the Committee may make future Awards with respect to Shares
that the Company retains from otherwise delivering pursuant to an Award either (i) as payment of
the exercise price of an Award, or (ii) in order to satisfy the withholding or employment taxes due
upon the grant, exercise, vesting or distribution of an Award. Notwithstanding the foregoing, but
subject to adjustments pursuant to Section 13 below, the number of Shares that are available for
ISO Awards shall be determined, to the extent required under applicable tax laws, by reducing the
number of Shares designated in the preceding paragraph by the number of Shares granted pursuant to
Awards (whether or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or surrendered in
payment of the Exercise Price for an Award shall be available for issuance pursuant to future ISO
Awards.
Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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2006 Stock Incentive Plan
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4. Administration
(a) General. The Committee shall administer the Plan in accordance with its terms, provided
that the Board may act in lieu of the Committee on any matter. The Committee shall hold meetings at
such times and places as it may determine and shall make such rules and regulations for the conduct
of its business as it deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as the Committee for
all purposes of the Plan.
(b) Committee Composition. The Board shall appoint the members of the Committee. If and to
the extent permitted by Applicable Law, the Committee may authorize one or more Reporting Persons
(or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or other
officers whom the Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the Committee with or
without Cause, and fill vacancies on the Committee however caused.
(c) Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have
the authority, in its sole discretion:
(i) to determine Eligible Persons to whom Awards shall be granted from time to time and the
number of Shares, units, or SARs to be covered by each Award;
(ii) to determine, from time to time, the Fair Market Value of Shares;
(iii) to determine, and to set forth in Award Agreements, the terms and conditions of all
Awards, including any applicable exercise or purchase price, the installments and conditions
under which an Award shall become vested (which may be based on performance), terminated,
expired, cancelled, or replaced, and the circumstances for vesting acceleration or waiver of
forfeiture restrictions, and other restrictions and limitations;
(iv) to approve the forms of Award Agreements and all other documents, notices and
certificates in connection therewith which need not be identical either as to type of Award or
among Participants;
(v) to construe and interpret the terms of the Plan and any Award Agreement, to determine
the meaning of their terms, and to prescribe, amend, and rescind rules and procedures relating
to the Plan and its administration; and
(vi) in order to fulfill the purposes of the Plan and without amending the Plan, modify,
cancel, or waive the Company’s rights with respect to any Awards, to adjust or to modify Award
Agreements for changes in Applicable Law, and to recognize differences in foreign law, tax
policies, or customs; and
(vii) to make all other interpretations and to take all other actions that the Committee
may consider necessary or advisable to administer the Plan or to effectuate its purposes.
Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may
delegate administrative functions to individuals who are Reporting Persons, officers, or Employees
of the Company or its Affiliates.
(d) Deference to Committee Determinations. The Committee shall have the discretion to
interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to
be appropriate in its sole discretion, and to make any findings of fact needed in the
administration of the Plan or Award Agreements. The Committee’s prior exercise of its discretionary
authority shall not obligate it to exercise its authority in a like fashion thereafter. The
Committee’s interpretation and construction of any provision of the Plan, or of any Award or Award
Agreement, shall be final, binding, and conclusive. The validity of any such interpretation,
construction, decision or finding of fact shall not be given de novo review if challenged in court,
by arbitration, or in any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.
(e) No Liability; Indemnification. Neither the Board nor any Committee member, nor any Person
acting at the direction of the Board or the Committee, shall be liable for any act, omission,
interpretation, construction or determination made in good faith with respect to the Plan, any
Award or any Award Agreement. The Company and its Affiliates shall pay or
Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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2006 Stock Incentive Plan
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reimburse any member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect to the Plan, and
to the full extent allowable under Applicable Law shall indemnify each and every one of them for
any claims, liabilities, and costs (including reasonable attorney’s fees) arising out of their good
faith performance of duties under the Plan. The Company and its Affiliates may obtain liability
insurance for this purpose.
5. Eligibility
(a) General Rule. The Committee may grant ISOs only to Employees (including officers who are
Employees) of the Company or an Affiliate that is a “parent corporation” or “subsidiary
corporation” within the meaning of Section 424 of the Code, and may grant all other Awards to any
Eligible Person. A Participant who has been granted an Award may be granted an additional Award or
Awards if the Committee shall so determine, if such person is otherwise an Eligible Person and if
otherwise in accordance with the terms of the Plan.
(b) Grant of Awards. Subject to the express provisions of the Plan, the Committee shall
determine from the class of Eligible Persons those individuals to whom Awards under the Plan may be
granted, the number of Shares subject to each Award, the price (if any) to be paid for the Shares
or the Award and, in the case of Performance Awards, in addition to the matters addressed in
Section 10 below, the specific objectives, goals and performance criteria that further define the
Performance Award. Each Award shall be evidenced by an Award Agreement signed by the Company and,
if required by the Committee, by the Participant. The Award Agreement shall set forth the material
terms and conditions of the Award established by the Committee, and each Award shall be subject to
the terms and conditions set forth in Sections 23, 24, and 25 unless otherwise specifically
provided in an Award Agreement.
(c) Limits on Awards. During any calendar year, no Participant may receive Options and SARs
that relate to more than 1,000,000 Shares. The Committee will adjust this limitation pursuant to
Section 13 below.
(d) Replacement Awards. Subject to Applicable Laws (including any associated Shareholder
approval requirements), the Committee may, in its sole discretion and upon such terms as it deems
appropriate, require as a condition of the grant of an Award to a Participant that the Participant
surrender for cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such surrender may or
may not be the same type of Award, may cover the same (or a lesser or greater) number of Shares as
such surrendered Award, may have other terms that are determined without regard to the terms or
conditions of such surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an Exercise Price that is
lower than the Exercise Price of the surrendered Option unless the Company’s shareholders approve
the grant itself or the program under which the grant is made pursuant to the Plan.
6. Option Awards
(a) Types; Documentation. The Committee may in its discretion grant ISOs to any Employee and
Non-ISOs to any Eligible Person, and shall evidence any such grants in an Award Agreement that is
delivered to the Participant. Each Option shall be designated in the Award Agreement as an ISO or a
Non-ISO, and the same Award Agreement may grant both types of Options. At the sole discretion of
the Committee, any Option may be exercisable, in whole or in part, immediately upon the grant
thereof, or only after the occurrence of a specified event, or only in installments, which
installments may vary. Options granted under the Plan may contain such terms and provisions not
inconsistent with the Plan that the Committee shall deem advisable in its sole and absolute
discretion.
(b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value of Shares
with respect to which Options designated as ISOs first become exercisable by a Participant in any
calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds
$100,000, such excess Options shall be treated as Non-ISOs. For purposes of determining whether the
$100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be
determined as of the Grant Date. In reducing the number of Options treated as ISOs to meet the
$100,000 limit, the most recently granted Options shall be reduced first. In the event that Section
422 of the Code is amended to alter the limitation set forth therein, the limitation of this
Section 6(b) shall be automatically adjusted accordingly.
Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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2006 Stock Incentive Plan
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(c) Term of Options. Each Award Agreement shall specify a term at the end of which the Option
automatically expires, subject to earlier termination provisions contained in Section 6(h) hereof;
provided, that, the term of any Option may not exceed ten years from the Grant Date. In the case of
an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date, the term of the ISO
shall not exceed five years from the Grant Date.
(d) Exercise Price. The exercise price of an Option shall be determined by the Committee in
its sole discretion and shall be set forth in the Award Agreement, provided that (i) if an ISO is
granted to an Employee who on the Grant Date is a Ten Percent Holder, the per Share exercise price
shall not be less than 110% of the Fair Market Value per Share on the Grant Date, and (ii) for all
other Options, such per Share exercise price shall not be less than 100% of the Fair Market Value
per Share on the Grant Date. Neither the Company nor the Committee shall, without shareholder
approval, allow for a repricing within the meaning of the federal securities laws applicable to
proxy statement disclosures.
(e) Exercise of Option. The times, circumstances and conditions under which an Option shall
be exercisable shall be determined by the Committee in its sole discretion and set forth in the
Award Agreement. The Committee shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that
in the absence of such determination, vesting of Options shall be tolled during any such leave
approved by the Company.
(f) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share.
The Committee may require in an Award Agreement that an Option be exercised as to a minimum number
of Shares, provided that such requirement shall not prevent a Participant from purchasing the full
number of Shares as to which the Option is then exercisable.
(g) Methods of Exercise. Prior to its expiration pursuant to the terms of the applicable
Award Agreement, and subject to the times, circumstances and conditions for exercise contained in
the applicable Award Agreement, each Option may be exercised, in whole or in part (provided that
the Company shall not be required to issue fractional shares), by delivery of written notice of
exercise to the secretary of the Company accompanied by the full exercise price of the Shares being
purchased. In the case of an ISO, the Committee shall determine the acceptable methods of payment
on the Grant Date and it shall be included in the applicable Award Agreement. The methods of
payment that the Committee may in its discretion accept or commit to accept in an Award Agreement
include:
(i) cash or check payable to the Company (in U.S. dollars);
(ii) other Shares that (A) are owned by the Participant who is purchasing Shares pursuant
to an Option, (B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is being exercised, (C) were not acquired by
such Participant pursuant to the exercise of an Option, unless such Shares have been owned by
such Participant for at least six months or such other period as the Committee may determine,
(D) are all, at the time of such surrender, free and clear of any and all claims, pledges, liens
and encumbrances, or any restrictions which would in any manner restrict the transfer of such
shares to or by the Company (other than such restrictions as may have existed prior to an
issuance of such Shares by the Company to such Participant), and (E) are duly endorsed for
transfer to the Company;
(iii) a cashless exercise program that the Committee may approve, from time to time in its
discretion, pursuant to which a Participant may concurrently provide irrevocable instructions
(A) to such Participant’s broker or dealer to effect the immediate sale of the purchased Shares
and remit to the Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the exercise price of the Option plus all applicable taxes required to be
withheld by the Company by reason of such exercise, and (B) to the Company to deliver the
certificates for the purchased Shares directly to such broker or dealer in order to complete the
sale; or
(iv) any combination of the foregoing methods of payment.
The Company shall not be required to deliver Shares pursuant to the exercise of an Option
until payment of the full exercise price therefore is received by the Company.
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(h) Termination of Continuous Service. The Committee may establish and set forth in the
applicable Award Agreement the terms and conditions on which an Option shall remain exercisable, if
at all, following termination of a Participant’s Continuous Service. The Committee may waive or
modify these provisions at any time. To the extent that a Participant is not entitled to exercise
an Option at the date of his or her termination of Continuous Service, or if the Participant (or
other person entitled to exercise the Option) does not exercise the Option to the extent so
entitled within the time specified in the Award Agreement or below (as applicable), the Option
shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the
Plan and become available for future Awards. In no event may any Option be exercised after the
expiration of the Option term as set forth in the Award Agreement.
The following provisions shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an Option shall terminate when there is a termination of a
Participant’s Continuous Service:
(i) Termination other than Upon Disability or Death or for Cause. In the event of
termination of a Participant’s Continuous Service (other than as a result of Participant’s
death, disability, retirement or termination for Cause), the Participant shall have the right to
exercise an Option at any time within 90 days following such termination to the extent the
Participant was entitled to exercise such Option at the date of such termination.
(ii) Disability. In the event of termination of a Participant’s Continuous Service as a
result of his or her being Disabled, the Participant shall have the right to exercise an Option
at any time within one year following such termination to the extent the Participant was
entitled to exercise such Option at the date of such termination.
(iii) Retirement. In the event of termination of a Participant’s Continuous Service as a
result of Participant’s retirement, the Participant shall have the right to exercise the Option
at any time within six months following such termination to the extent the Participant was
entitled to exercise such Option at the date of such termination.
(iv) Death. In the event of the death of a Participant during the period of Continuous
Service since the Grant Date of an Option, or within thirty days following termination of the
Participant’s Continuous Service, the Option may be exercised, at any time within one year
following the date of the Participant’s death, by the Participant’s estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to the extent the
right to exercise the Option had vested at the date of death or, if earlier, the date the
Participant’s Continuous Service terminated.
(v) Cause. If the Committee determines that a Participant’s Continuous Service terminated
due to Cause, the Participant shall immediately forfeit the right to exercise any Option, and it
shall be considered immediately null and void.
(i) Reverse Vesting. The Committee in its sole discretion may allow a Participant to exercise
unvested Options, in which case the Shares then issued shall be Restricted Shares having analogous
vesting restrictions to the unvested Options.
(j) Buyout Provisions. The Committee may at any time offer to buy out an Option, in exchange
for a payment in cash or Shares, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such offer is made.
7. Share Appreciate Rights (SARs)
(a) Grants. The Committee may in its discretion grant Share Appreciation Rights to any
Eligible Person, in any of the following forms:
(i) SARs related to Options. The Committee may grant SARs either concurrently with the
grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend
to all or a portion of the Shares covered by the related Option. An SAR shall entitle the
Participant who holds the related Option, upon exercise of the SAR and surrender of the related
Option, or portion thereof, to the extent the SAR and related Option each were previously
unexercised, to receive payment of an amount determined pursuant to Section 7(e) below. Any SAR
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granted in connection with an ISO will contain such terms as may be required to comply with
the provisions of Section 422 of the Code and the regulations promulgated thereunder.
(ii) SARs Independent of Options. The Committee may grant SARs which are independent of
any Option subject to such conditions as the Committee may in its discretion determine, which
conditions will be set forth in the applicable Award Agreement.
(iii) Limited SARs. The Committee may grant SARs exercisable only upon or in respect of a
Change in Control or any other specified event, and such limited SARs may relate to or operate
in tandem or combination with or substitution for Options or other SARs, or on a stand-alone
basis, and may be payable in cash or Shares based on the spread between the exercise price of
the SAR, and (A) a price based upon or equal to the Fair Market Value of the Shares during a
specified period, at a specified time within a specified period before, after or including the
date of such event, or (B) a price related to consideration payable to Company’s shareholders
generally in connection with the event.
(b) Exercise Price. The per Share exercise price of an SAR shall be determined in the sole
discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no
less than 100% of the Fair Market Value of one Share. The exercise price of an SAR related to an
Option shall be the same as the exercise price of the related Option. Neither the Company nor the
Committee shall, without shareholder approval, allow for a repricing within the meaning of federal
securities laws applicable to proxy statement disclosures.
(c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR related to an
Option will be exercisable at such time or times, and to the extent, that the related Option will
be exercisable; provided that the Award Agreement shall not, without the approval of the
shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more
favorable to the Participant than the exercise period for the related Option. An SAR may not have a
term exceeding ten years from its Grant Date. An SAR granted independently of any other Award will
be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of
the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related Option. Whether an SAR
is related to an Option or is granted independently, the SAR may only be exercised when the Fair
Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.
(d) Effect on Available Shares. All SARs that may be settled in shares of the Company’s stock
shall be counted in full against the number of shares available for award under the Plan,
regardless of the number of shares actually issued upon settlement of the SARs.
(e) Payment. Upon exercise of an SAR related to an Option and the attendant surrender of an
exercisable portion of any related Award, the Participant will be entitled to receive payment of an
amount determined by multiplying —
(i) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over
the exercise price per Share of the SAR, by
(ii) the number of Shares with respect to which the SAR has been exercised.
Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the
amount payable to the Participant to a percentage, specified in the Award Agreement but not
exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence,
and (ii) shall be subject to any payment or other restrictions that the Committee may at any time
impose in its discretion, including restrictions intended to conform the SARs with Section 409A of
the Code.
(f) Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its sole
discretion, settle the amount determined under Section 7(e) above solely in cash, solely in Shares
(valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and
partly in Shares, with cash paid in lieu of fractional shares. Unless otherwise provided in an
Award Agreement, all SARs shall be settled in Shares as soon as practicable after exercise.
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(g) Termination of Employment or Consulting Relationship. The Committee shall establish and
set forth in the applicable Award Agreement the terms and conditions on which an SAR shall remain
exercisable, if at all, following termination of a Participant’s Continuous Service. The provisions
of Section 6(h) above shall apply to the extent an Award Agreement does not specify the terms and
conditions upon which an SAR shall terminate when there is a termination of a Participant’s
Continuous Service.
(h) Buy out. The Committee has the same discretion to buy out SARs as it has to take such
actions pursuant to Section 6(j) above with respect to Options.
8. Restricted Shares, Restricted Share Units, and Unrestricted Shares
(a) Grants. The Committee may in its sole discretion grant restricted shares (“Restricted
Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant and that sets forth the number of Restricted Shares, the purchase
price for such Restricted Shares (if any), and the terms upon which the Restricted Shares may
become vested. In addition, the Company may in its discretion grant the right to receive Shares
after certain vesting requirements are met (“Restricted Share Units”) to any Eligible Person and
shall evidence such grant in an Award Agreement that is delivered to the Participant which sets
forth the number of Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may become vested. The
Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant
on receiving from the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards hereunder in the
form of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon the date of
grant or such other date as the Committee may determine or which the Committee may issue pursuant
to any program under which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that would otherwise be
paid.
(b) Vesting and Forfeiture. The Committee shall set forth in an Award Agreement granting
Restricted Shares or Restricted Share Units, the terms and conditions under which the Participant’s
interest in the Restricted Shares or the Shares subject to Restricted Share Units will become
vested and non-forfeitable. Except as set forth in the applicable Award Agreement or the Committee
otherwise determines, upon termination of a Participant’s Continuous Service for any other reason,
the Participant shall forfeit his or her Restricted Shares and Restricted Share Units; provided
that if a Participant purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set forth in an Award
Agreement.
(c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue stock
certificates that evidence Restricted Shares pending the lapse of applicable restrictions, and that
bear a legend making appropriate reference to such restrictions. Except as set forth in the
applicable Award Agreement or the Committee otherwise determines, the Company or a third party that
the Company designates shall hold such Restricted Shares and any dividends that accrue with respect
to Restricted Shares pursuant to Section 8(e) below.
(d) Issuance of Shares upon Vesting. As soon as practicable after vesting of a Participant’s
Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s satisfaction
of applicable tax withholding requirements, the Company shall release to the Participant, free from
the vesting restrictions, one Share for each vested Restricted Share (or issue one Share free of
the vesting restriction for each vested Restricted Share Unit), unless an Award Agreement provides
otherwise. No fractional shares shall be distributed, and cash shall be paid in lieu thereof.
(e) Dividends Payable on Vesting. Whenever Shares are released to a Participant or
duly-authorized transferee pursuant to Section 8(d) above as a result of the vesting of Restricted
Shares or the Shares underlying Restricted Share Units are issued to a Participant pursuant to
Section 8(d) above, such Participant or duly-authorized transferee shall also be entitled to
receive (unless otherwise provided in the Award Agreement), with respect to each Share released or
issued, an amount equal to any cash dividends (plus, in the sole discretion of the Committee,
simple interest at a rate as the Committee may determine) and a number of Shares equal to any stock
dividends, which were declared and paid to the holders of Shares between the Grant Date and the
date such Share is released from the vesting restrictions in the case of Restricted Shares or
issued in the case of Restricted Share Units.
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(f) Section 83(b) Elections. A Participant may make an election under Section 83(b) of the
Code (the “Section 83(b) Election”) with respect to Restricted Shares. If a Participant who has
received Restricted Share Units provides the Committee with written notice of his or her intention
to make a Section 83(b) Election with respect to the Shares subject to such Restricted Share Units,
the Committee may in its discretion convert the Participant’s Restricted Share Units into
Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s Restricted
Share Unit Award. The Participant may then make a Section 83(b) Election with respect to those
Restricted Shares. Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.
(g) Deferral Elections. At any time within the thirty-day period (or other shorter or longer
period that the Committee selects in its sole discretion) in which a Participant who is a member of
a select group of management or highly compensated employees (within the meaning of the Code)
receives an Award of either Restricted Shares or Restricted Share Units, the Committee may permit
the Participant to irrevocably elect, on a form provided by and acceptable to the Committee, to
defer the receipt of all or a percentage of the Shares that would otherwise be transferred to the
Participant upon the vesting of such Award. If the Participant makes this election, the Shares
subject to the election, and any associated dividends and interest, shall be credited to an account
established pursuant to Section 9 hereof on the date such Shares would otherwise have been released
or issued to the Participant pursuant to Section 8(d) above.
9. Deferred Share Units
(a) Elections to Defer. The Committee may permit any Eligible Person who is a Director,
Consultant or member of a select group of management or highly compensated employees (within the
meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the Committee
(the “Election Form”), to forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a Section 83(b) Election
has been made), and in lieu thereof to have the Company credit to an internal Plan account (the
“Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market Value
equal to the Shares and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall take effect on the
first day of the next calendar year (or on the first day of the next calendar month in the case of
an initial election by a Participant who first becomes eligible to defer hereunder) after its
delivery to the Company, subject to Section 8(g) regarding deferral of Restricted Shares and
Restricted Share Units and to Section 10(e) regarding deferral of Performance Awards, unless the
Company sends the Participant a written notice explaining why the Election Form is invalid within
five business days after the Company receives it. Notwithstanding the foregoing sentence: (i)
Election Forms shall be ineffective with respect to any compensation that a Participant earns
before the date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.
(b) Vesting. Unless an Award Agreement expressly provides otherwise, each Participant shall
be 100% vested at all times in any Shares subject to Deferred Share Units.
(c) Issuances of Shares. The Company shall provide a Participant with one Share for each
Deferred Share Unit in five substantially equal annual installments that are issued before the last
day of each of the five calendar years that end after the date on which the Participant’s
Continuous Service terminates, unless —
(i) the Participant has properly elected a different form of distribution, on a form
approved by the Committee, that permits the Participant to select any combination of a lump sum
and annual installments that are completed within ten years following termination of the
Participant’s Continuous Service, and
(ii) the Company received the Participant’s distribution election form at the time the
Participant elects to defer the receipt of cash or other compensation pursuant to Section 9(a),
provided that such election may be changed through any subsequent election that (i) is delivered
to the Company at least one year before the date on which distributions are otherwise scheduled
to commence pursuant to the Participant’s election, and (ii) defers the commencement of
distributions by at least five years from the originally scheduled commencement date.
Fractional shares shall not be issued, and instead shall be paid out in cash.
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(d) Crediting of Dividends. Whenever Shares are issued to a Participant pursuant to Section
9(c) above, such Participant shall also be entitled to receive, with respect to each Share issued,
a cash amount equal to any cash dividends (plus simple interest at a rate of five percent per
annum, or such other reasonable rate as the Committee may determine), and a number of Shares equal
to any stock dividends which were declared and paid to the holders of Shares between the Grant Date
and the date such Share is issued.
(e) Emergency Withdrawals. In the event a Participant suffers an unforeseeable emergency
within the contemplation of this Section and Section 409A of the Code, the Participant may apply to
the Company for an immediate distribution of all or a portion of the Participant’s Deferred Share
Units. The unforeseeable emergency must result from a sudden and unexpected illness or accident of
the Participant, the Participant’s spouse, or a dependent (within the meaning of Section 152(a) of
the Code) of the Participant, casualty loss of the Participant’s property, or other similar
extraordinary and unforeseeable conditions beyond the control of the Participant. Examples of
purposes which are not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made to the extent the
unforeseeable emergency could be relieved through reimbursement or compensation by insurance or
otherwise, or by liquidation of the Participant’s nonessential assets to the extent such
liquidation would not itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant’s unforeseeable
emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution. The Committee shall determine whether a Participant has a qualifying unforeseeable
emergency and the amount which qualifies for distribution, if any. The Committee may require
evidence of the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.
(f) Unsecured Rights to Deferred Compensation. A Participant’s right to Deferred Share Units
shall at all times constitute an unsecured promise of the Company to pay benefits as they come due.
The right of the Participant or the Participant’s duly-authorized transferee to receive benefits
hereunder shall be solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant’s duly-authorized transferee shall have any claim against or rights
in any specific assets, shares, or other funds of the Company.
10. Performance Awards
(a) Performance Units. Subject to the limitations set forth in paragraph (c) hereof, the
Committee may in its discretion grant Performance Units to any Eligible Person and shall evidence
such grant in an Award Agreement that is delivered to the Participant which sets forth the terms
and conditions of the Award.
(b) Performance Compensation Awards. Subject to the limitations set forth in paragraph (c)
hereof, the Committee may, at the time of grant of a Performance Unit, designate such Award as a
“Performance Compensation Award” (payable in cash or Shares) in order that such Award constitutes
“qualified performance-based compensation” under Code Section 162(m), in which event the Committee
shall have the power to grant such Performance Compensation Award upon terms and conditions that
qualify it as “qualified performance-based compensation” within the meaning of Code Section 162(m).
With respect to each such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a “Performance Period,” “Performance
Measure(s)”, and “Performance Formula(e)” (each such term being hereinafter defined). Once
established for a Performance Period, the Performance Measure(s) and Performance Formula(e) shall
not be amended or otherwise modified to the extent such amendment or modification would cause the
compensation payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).
A Participant shall be eligible to receive payment in respect of a Performance Compensation
Award only to the extent that the Performance Measure(s) for such Award is achieved and the
Performance Formula(e) as applied against such Performance Measure(s) determines that all or some
portion of such Participant’s Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall review and certify in
writing whether, and to what extent, the Performance Measure(s) for the Performance Period have
been achieved and, if so, determine and certify in writing the amount of the Performance
Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon
such performance.
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(c) Limitations on Awards. The maximum Performance Unit Award and the maximum Performance
Compensation Award that any one Participant may receive for any one Performance Period shall not
together exceed 1,000,000 Shares and $1,000,000 in cash. The Committee shall have the discretion to
provide in any Award Agreement that any amounts earned in excess of these limitations will either
be credited as Deferred Share Units, or as deferred cash compensation under a separate plan of the
Company (provided in the latter case that such deferred compensation either bears a reasonable rate
of interest or has a value based on one or more predetermined actual investments). Any amounts for
which payment to the Participant is deferred pursuant to the preceding sentence shall be paid to
the Participant in a future year or years not earlier than, and only to the extent that, the
Participant is either not receiving compensation in excess of these limits for a Performance
Period, or is not subject to the restrictions set forth under Section 162(b) of the Code.
(d) Definitions.
(i) “Performance Formula” means, for a Performance Period, one or more objective formulas
or standards established by the Committee for purposes of determining whether or the extent to
which an Award has been earned based on the level of performance attained or to be attained with
respect to one or more Performance Measure(s). Performance Formulae may vary from Performance
Period to Performance Period and from Participant to Participant and may be established on a
stand-alone basis, in tandem or in the alternative.
(ii) “Performance Measure” means one or more of the following selected by the Committee to
measure Company, Affiliate, and/or business unit performance for a Performance Period, whether
in absolute or relative terms (including, without limitation, terms relative to a peer group or
index): basic, diluted, or adjusted earnings per share; sales or revenue; earnings before
interest, taxes, and other adjustments (in total or on a per share basis); basic or adjusted net
income; returns on equity, assets, capital, revenue or similar measure; economic value added;
working capital; total shareholder return; and product development, product market share,
research, licensing, litigation, human resources, information services, mergers, acquisitions,
sales of assets of Affiliates or business units. Each such measure shall be, to the extent
applicable, determined in accordance with generally accepted accounting principles as
consistently applied by the Company (or such other standard applied by the Committee) and, if so
determined by the Committee, and in the case of a Performance Compensation Award, to the extent
permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain
or loss on the disposal of a business segment, unusual or infrequently occurring events and
transactions and cumulative effects of changes in accounting principles. Performance Measures
may vary from Performance Period to Performance Period and from Participant to Participant, and
may be established on a stand-alone basis, in tandem or in the alternative.
(iii) “Performance Period” means one or more periods of time (of not less than one fiscal
year of the Company), as the Committee may designate, over which the attainment of one or more
Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in
respect of an Award.
(e) Deferral Elections. At any time prior to the date that is at least six months before the
close of a Performance Period (or shorter or longer period that the Committee selects) with respect
to an Award of either Performance Units or Performance Compensation, the Committee may permit a
Participant who is a member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the cash or Shares that would otherwise
be transferred to the Participant upon the vesting of such Award. If the Participant makes this
election, the cash or Shares subject to the election, and any associated interest and dividends,
shall be credited to an account established pursuant to Section 9 hereof on the date such cash or
Shares would otherwise have been released or issued to the Participant pursuant to Section 10(a) or
Section 10(b) above.
11. Taxes
(a) General. As a condition to the issuance or distribution of Shares pursuant to the Plan,
the Participant (or in the case of the Participant’s death, the person who succeeds to the
Participant’s rights) shall make such arrangements as the Company may require for the satisfaction
of any applicable federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be required to issue
any Shares until such obligations are satisfied. If the Committee allows the withholding or
surrender of Shares to satisfy a
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Participant’s tax withholding obligations, the Committee shall not allow Shares to be withheld
in an amount that exceeds the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes.
(b) Default Rule for Employees. In the absence of any other arrangement, an Employee shall be
deemed to have directed the Company to withhold or collect from his or her cash compensation an
amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable
after the date of the exercise of an Award.
(c) Special Rules. In the case of a Participant other than an Employee (or in the case of an
Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with
respect to any remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that number of Shares
having a Fair Market Value determined as of the applicable Tax Date (as defined below) or cash
equal to the amount required to be withheld. For purposes of this Section 11, the Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld
is to be determined under the Applicable Law (the “Tax Date”).
(d) Surrender of Shares. If permitted by the Committee, in its discretion, a Participant may
satisfy the minimum applicable tax withholding and employment tax obligations associated with an
Award by surrendering Shares to the Company (including Shares that would otherwise be issued
pursuant to the Award) that have a Fair Market Value determined as of the applicable Tax Date equal
to the amount required to be withheld. In the case of Shares previously acquired from the Company
that are surrendered under this Section 11, such Shares must have been owned by the Participant for
more than six months on the date of surrender (or such longer period of time the Company may in its
discretion require).
(e) Income Taxes and Deferred Compensation. Participants are solely responsible and liable
for the satisfaction of all taxes and penalties that may arise in connection with Awards (including
any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to
indemnify or otherwise hold any Participant harmless from any or all of such taxes. The Committee
shall have the discretion to organize any deferral program, to require deferral election forms, and
to grant or to unilaterally modify any Award in a manner that (i) conforms with the requirements of
Section 409A of the Code with respect to compensation that is deferred and that vests after
December 31, 2004, (ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate Section 409A of the
Code, to make distributions pursuant to the Award at the earliest to occur of a distribution event
that is allowable under Section 409A of the Code or any distribution event that is both allowable
under Section 409A of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second elections to defer in accordance with
Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret the requirements
of the Code, including Section 409A, for purposes of the Plan and all Awards.
12. Non-Transferability of Awards
(a) General. Except as set forth in this Section 12, or as otherwise approved by the
Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution. The designation of a
beneficiary by a Participant will not constitute a transfer. An Award may be exercised, during the
lifetime of the holder of an Award, only by such holder, the duly-authorized legal representative
of a Participant who is Disabled, or a transferee permitted by this Section 12.
(b) Limited Transferability Rights. Notwithstanding anything else in this Section 12, the
Committee may in its discretion provide in an Award Agreement that an Award other than an ISO may
be transferred, on such terms and conditions as the Committee deems appropriate, either (i) by
instrument to the Participant’s “Immediate Family” (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the
Participant’s designated beneficiaries, or (iii) by gift to charitable institutions. Any transferee
of the Participant’s rights shall succeed and be subject to all of the terms of the applicable
Award Agreement and the Plan. “Immediate Family” means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
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13. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions
(a) Changes in Capitalization. The Committee shall equitably adjust the number of Shares
covered by each outstanding Award, and the number of Shares that have been authorized for issuance
under the Plan but as to which no Awards have yet been granted or that have been returned to the
Plan upon cancellation, forfeiture, or expiration of an Award, as well as the price per Share
covered by each such outstanding Award, to reflect any increase or decrease in the number of issued
Shares resulting from a stock-split, reverse stock-split, stock dividend, combination,
recapitalization or reclassification of the Shares, or any other increase or decrease in the number
of issued Shares effected without receipt of consideration by the Company. In the event of any such
transaction or event, the Committee may provide in substitution for any or all outstanding Options
under the Plan such alternative consideration (including securities of any surviving entity) as it
may in good faith determine to be equitable under the circumstances and may require in connection
therewith the surrender of all Options so replaced. In any case, such substitution of securities
shall not require the consent of any person who is granted Options pursuant to the Plan. Except as
expressly provided herein, or in an Award Agreement, if the Company issues for consideration shares
of stock of any class or securities convertible into shares of stock of any class, the issuance
shall not affect, and no adjustment by reason thereof shall be required to be made with respect to
the number or price of Shares subject to any Award.
(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company
other than as part of a Change of Control, each Award will terminate immediately prior to the
consummation of such action, subject to the ability of the Committee to exercise any discretion
authorized in the case of a Change in Control.
(c) Change in Control. In the event of a Change in Control, the Committee may in its sole and
absolute discretion and authority, without obtaining the approval or consent of the Company’s
shareholders or any Participant with respect to his or her outstanding Awards, take one or more of
the following actions:
(i) arrange for or otherwise provide that each outstanding Award shall be assumed or a
substantially similar award shall be substituted by a successor corporation or a parent or
subsidiary of such successor corporation (the “Successor Corporation”);
(ii) accelerate the vesting of Awards so that Awards shall vest (and, to the extent
applicable, become exercisable) as to the Shares that otherwise would have been unvested and
provide that repurchase rights of the Company with respect to Shares issued upon exercise of an
Award shall lapse as to the Shares subject to such repurchase right;
(iii) arrange or otherwise provide for the payment of cash or other consideration to
Participants in exchange for the satisfaction and cancellation of outstanding Awards;
(iv) terminate upon the consummation of the transaction, provided that the Committee may in
its sole discretion provide for vesting of all or some outstanding Awards in full as of a date
immediately prior to consummation of the Change of Control. To the extent that an Award is not
exercised prior to consummation of a transaction in which the Award is not being assumed or
substituted, such Award shall terminate upon such consummation; or
(v) make such other modifications, adjustments or amendments to outstanding Awards or this
Plan as the Committee deems necessary or appropriate, subject however to the terms of Section
15(a) below.
Notwithstanding the above, in the event a Participant holding an Award assumed or substituted
by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor
Corporation in connection with, or within 12 months following consummation of, the Change in
Control, then any assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in the case of
Options and SARs), and any repurchase right applicable to any Shares shall lapse in full, unless an
Award Agreement provides for a more restrictive acceleration or vesting schedule or more
restrictive limitations on the lapse of repurchase rights or otherwise places additional
restrictions, limitations and conditions on an Award. The acceleration of vesting and lapse of
repurchase rights provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant’s termination, unless an Award Agreement provides otherwise.
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(d) Certain Distributions. In the event of any distribution to the Company’s shareholders of
securities of any other entity or other assets (other than dividends payable in cash or stock of
the Company) without receipt of consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to reflect the effect of
such distribution.
14. Time of Granting Awards.
The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes
the determination granting such Award or such other date as is determined by the Committee,
provided that in the case of an ISO, the Grant Date shall be the later of the date on which the
Committee makes the determination granting such ISO or the date of commencement of the
Participant’s employment relationship with the Company.
15. Modification of Awards and Substitution of Options.
(a) Modification, Extension, and Renewal of Awards. Within the limitations of the Plan, the
Committee may modify an Award to accelerate the rate at which an Option or SAR may be exercised
(including without limitation permitting an Option or SAR to be exercised in full without regard to
the installment or vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been exercised), to accelerate
the vesting of any Award, to extend or renew outstanding Awards or to accept the cancellation of
outstanding Awards to the extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to the participant at
a lower exercise price or granting a replacement award of a different type. Notwithstanding the
foregoing provision, no modification of an outstanding Award shall materially and adversely affect
such Participant’s rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally to make the
modification.
(b) Substitution of Options. Notwithstanding any inconsistent provisions or limits under the
Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or otherwise)
all or substantially all of outstanding capital stock or assets of another corporation or in the
event of any reorganization or other transaction qualifying under Section 424 of the Code, the
Committee may, in accordance with the provisions of that Section, substitute Options for options
under the plan of the acquired company provided (i) the excess of the aggregate fair market value
of the shares subject to an option immediately after the substitution over the aggregate option
price of such shares is not more than the similar excess immediately before such substitution and
(ii) the new option does not give persons additional benefits, including any extension of the
exercise period.
16. Term of Plan.
The Plan shall continue in effect for a term of ten (10) years from its effective date as
determined under Section 20 below, unless the Plan is sooner terminated under Section 17 below.
17. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board may from time to
time amend, alter, suspend, discontinue, or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, suspension, or termination of the Plan
shall materially and adversely affect Awards already granted unless either it relates to an
adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the Participant
and the Committee, which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to eliminate provisions
which are no longer necessary as a result of changes in tax or securities laws or regulations, or
in the interpretation thereof.
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18. Conditions Upon Issuance of Shares.
Notwithstanding any other provision of the Plan or any agreement entered into by the Company
pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure,
to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with
Applicable Law, with such compliance determined by the Company in consultation with its legal
counsel.
19. Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
20. Effective Date.
This Plan shall become effective on the date on which it has received approval by a vote of a
majority of the votes cast at a duly held meeting of the Company’s shareholders (or by such other
shareholder vote that the Administrator determines to be sufficient for the issuance of Shares or
stock options according to the Company’s governing documents and applicable state law).
21. Controlling Law.
All disputes relating to or arising from the Plan shall be governed by the internal
substantive laws (and not the laws of conflicts of laws) of the State of Delaware, to the extent
not preempted by United States federal law. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to
be fully effective.
22. Laws And Regulations.
(a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of Options and
SARs under this Plan, and the obligation of the Company to sell or deliver any of its securities
(including, without limitation, Options, Restricted Shares, Restricted Share Units, Deferred Share
Units, and Shares) under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the “Act”), or any
applicable state securities laws prior to the delivery of such Shares, the Company may require, as
a condition to the issuance thereof, that the persons to whom Shares are to be issued represent and
warrant in writing to the Company that such Shares are being acquired by him or her for investment
for his or her own account and not with a view to, for resale in connection with, or with an intent
of participating directly or indirectly in, any distribution of such Shares within the meaning of
the Act, and a legend to that effect may be placed on the certificates representing the Shares.
(b) Other Jurisdictions. To facilitate the making of any grant of an Award under this Plan,
the Committee may provide for such special terms for Awards to Participants who are foreign
nationals or who are employed by the Company or any Affiliate outside of the United States of
America as the Committee may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local laws and procedures
of particular countries. Without limiting the foregoing, the Company is specifically authorized to
adopt rules and procedures regarding the conversion of local currency, taxes, withholding
procedures and handling of stock certificates which vary with the customs and requirements of
particular countries. The Company may adopt sub-plans and establish escrow accounts and trusts as
may be appropriate or applicable to particular locations and countries.
23. No Shareholder Rights.
Neither a Participant nor any transferee of a Participant shall have any rights as a
shareholder of the Company with respect to any Shares underlying any Award until the date of
issuance of a share certificate to a Participant or a transferee of a Participant for such Shares
in accordance with the Company’s governing instruments and Applicable Law. Prior to the issuance of
Shares pursuant to an Award, a Participant shall not have the right to vote or to receive dividends
or any other rights as a shareholder with respect to the Shares underlying the Award,
notwithstanding its exercise in the case of
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Options and SARs. No adjustment will be made for a dividend or other right that is determined
based on a record date prior to the date the stock certificate is issued, except as otherwise
specifically provided for in this Plan.
24. No Employment Rights.
The Plan shall not confer upon any Participant any right to continue an employment, service or
consulting relationship with the Company, nor shall it affect in any way a Participant’s right or
the Company’s right to terminate the Participant’s employment, service, or consulting relationship
at any time, with or without Cause.
25. Termination, Rescission and Recapture.
(a) Each Award under the Plan is intended to align the Participant’s long-term interest with
those of the Company. If the Participant engages in certain activities discussed below, either
during employment or after employment with the Company terminates for any reason, the Participant
is acting contrary to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any outstanding, unexercised,
unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise, payment or delivery
pursuant to the Award (“Rescission”), or recapture any Common Stock (whether restricted or
unrestricted) or proceeds from the Participant’s sale of Shares issued pursuant to the Award
(“Recapture”), if the Participant does not comply with the conditions of subsections (b) and (c)
hereof (collectively, the “Conditions”).
(b) A Participant shall not, without the Company’s prior written authorization, disclose to
anyone outside the Company, or use in other than the Company’s business, any proprietary or
confidential information or material, as those or other similar terms are used in any applicable
patent, confidentiality, inventions, secrecy, or other agreement between the Participant and the
Company with regard to any such proprietary or confidential information or material.
(c) Pursuant to any agreement between the Participant and the Company with regard to
intellectual property (including but not limited to patents, trademarks, copyrights, trade secrets,
inventions, developments, improvements, proprietary information, confidential business and
personnel information), a Participant shall promptly disclose and assign to the Company or its
designee all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and interest in such
intellectual property in the United States and in any foreign country.
(d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to an Award, the
Participant shall certify on a form acceptable to the Company that he or she is in compliance with
the terms and conditions of the Plan and, if a severance of Continuous Service has occurred for any
reason, shall state the name and address of the Participant’s then-current employer or any entity
for which the Participant performs business services and the Participant’s title, and shall
identify any organization or business in which the Participant owns a greater-than-five-percent
equity interest.
(e) If the Company determines, in its sole and absolute discretion, that (i) a Participant has
violated any of the Conditions or (ii) during his or her Continuous Service, or within one year
after its termination for any reason, a Participant (a) has rendered services to or otherwise
directly or indirectly engaged in or assisted, any organization or business that, in the judgment
of the Company in its sole and absolute discretion, is or is working to become competitive with the
Company; (b) has solicited any non-administrative employee of the Company to terminate employment
with the Company; or (c) has engaged in activities which are materially prejudicial to or in
conflict with the interests of the Company, including any breaches of fiduciary duty or the duty of
loyalty, then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant’s relevant Awards,
Shares, and the proceeds thereof.
(f) Within ten days after receiving notice from the Company of any such activity, the
Participant shall deliver to the Company the Shares acquired pursuant to the Award, or, if
Participant has sold the Shares, the gain realized, or payment received as a result of the
rescinded exercise, payment, or delivery; provided, that if the Participant returns Shares that the
Participant purchased pursuant to the exercise of an Option (or the gains realized from the sale of
such Common Stock), the Company shall promptly refund the exercise price, without earnings, that
the Participant paid for the Shares. Any payment by the Participant to the Company pursuant to this
Section 21 shall be made either in cash or by returning to the Company the number of Shares that
the Participant received in connection with the rescinded exercise, payment,
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or delivery. It shall not be a basis for Termination, Rescission or Recapture if after
termination of a Participant’s Continuous Service, the Participant purchases, as an investment or
otherwise, stock or other securities of such an organization or business, so long as (i) such stock
or other securities are listed upon a recognized securities exchange or traded over-the-counter,
and (ii) such investment does not represent more than a five percent (5%) equity interest in the
organization or business.
(g) Notwithstanding the foregoing provisions of this Section, the Company has sole and
absolute discretion not to require Termination, Rescission and/or Recapture, and its determination
not to require Termination, Rescission and/or Recapture with respect to any particular act by a
particular Participant or Award shall not in any way reduce or eliminate the Company’s authority to
require Termination, Rescission and/or Recapture with respect to any other act or Participant or
Award. Nothing in this Section shall be construed to impose obligations on the Participant to
refrain from engaging in lawful competition with the Company after the termination of employment
that does not violate subsections (b) or (c) of this Section, other than any obligations that are
part of any separate agreement between the Company and the Participant or that arise under
applicable law.
(h) All administrative and discretionary authority given to the Company under this Section
shall be exercised by the most senior human resources executive of the Company or such other person
or committee (including without limitation the Committee) as the Committee may designate from time
to time.
(i) Notwithstanding any provision of this Section, if any provision of this Section is
determined to be unenforceable or invalid under any applicable law, such provision will be applied
to the maximum extent permitted by applicable law, and shall automatically be deemed amended in a
manner consistent with its objectives to the extent necessary to conform to any limitations
required under applicable law. Furthermore, if any provision of this Section is illegal under any
applicable law, such provision shall be null and void to the extent necessary to comply with
applicable law.
Notwithstanding the foregoing, but subject to any contrary terms set forth in any Award
Agreement, this Section shall not be applicable: (i) to any Participant who is not, on the Award
Date, an Employee of the Company or its Affiliates; and (ii) to any Participant from and after his
or her termination of Continuous Service after a Change in Control.
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COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
Appendix A: Definitions
As used in the Plan, the following definitions shall apply:
“Affiliate” means, with respect to any Person (as defined below), any other Person that
directly or indirectly controls or is controlled by or under common control with such Person. For
the purposes of this definition, “control,” when used with respect to any Person, means the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of such Person or the power to elect directors, whether through the ownership of voting
securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.
“Applicable Law” means the legal requirements relating to the administration of options and
share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock
exchange or automated quotation system rules or regulations, and the applicable laws of any other
country or jurisdiction where Awards are granted, as such laws, rules, regulations and requirements
shall be in place from time to time.
“Award” means any award made pursuant to the Plan, including awards made in the form of an
Option, an SAR, a Restricted Share, a Restricted Share Unit, an Unrestricted Share, a Deferred
Share Unit, and a Performance Award, or any combination thereof, whether alternative or cumulative,
authorized by and granted under this Plan.
“Award Agreement” means any written document setting forth the terms of an Award that has been
authorized by the Committee. The Committee shall determine the form or forms of documents to be
used, and may change them from time to time for any reason.
“Board” means the Board of Directors of the Company.
“Cause” for termination of a Participant’s Continuous Service will exist if the Participant is
terminated from employment or other service with the Company or an Affiliate for any of the
following reasons: (i) the Participant’s willful failure to substantially perform his or her duties
and responsibilities to the Company or deliberate violation of a material Company policy; (ii) the
Participant’s commission of any material act or acts of fraud, embezzlement, dishonesty, or other
willful misconduct; (iii) the Participant’s material unauthorized use or disclosure of any
proprietary information or trade secrets of the Company or any other party to whom the Participant
owes an obligation of nondisclosure as a result of his or her relationship with the Company; or
(iv) Participant’s willful and material breach of any of his or her obligations under any written
agreement or covenant with the Company.
The Committee shall in its discretion determine whether or not a Participant is being
terminated for Cause. The Committee’s determination shall, unless arbitrary and capricious, be
final and binding on the Participant, the Company, and all other affected persons. The foregoing
definition does not in any way limit the Company’s ability to terminate a Participant’s employment
or consulting relationship at any time, and the term “Company” will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.
“Change in Control” means any of the following:
(i) Acquisition of Controlling Interest. Any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 50% or more of the combined voting
power of the Company’s then outstanding securities. In applying the preceding sentence, (i)
securities acquired directly from the Company or its Affiliates by or for the Person shall not
be taken into account, and (ii) an agreement to vote securities shall be disregarded unless its
ultimate purpose is to cause what would otherwise be a Change in Control, as reasonably
determined by the Board.
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(ii) Change in Board Control. During a consecutive 2-year period commencing after the date
of adoption of this Plan, individuals who constituted the Board at the beginning of the period
(or their approved replacements, as defined in the next sentence) cease for any reason to
constitute a majority of the Board. A new Director shall be considered an “approved replacement”
Director if his or her election (or nomination for election) was approved by a vote of at least
a majority of the Directors then still in office who either were Directors at the beginning of
the period or were themselves approved replacement Directors, but in either case excluding any
Director whose initial assumption of office occurred as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the Board.
(iii) Merger. The Company consummates a merger, or consolidation of the Company with any
other corporation unless: (a) the voting securities of the Company outstanding immediately
before the merger or consolidation would continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; and (b) no Person becomes the
Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company’s then outstanding securities.
(iv) Sale of Assets. The stockholders of the Company approve an agreement for the sale or
disposition by the Company of all, or substantially all, of the Company’s assets.
(v) Liquidation or Dissolution. The stockholders of the Company approve a plan or proposal
for liquidation or dissolution of the Company.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Committee” means one or more committees or subcommittees of the Board appointed by the Board
to administer the Plan in accordance with Section 4 above. With respect to any decision involving
an Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall
consist of two or more Directors of the Company who are “outside directors” within the meaning of
Section 162(m) of the Code. With respect to any decision relating to a Reporting Person, the
Committee shall consist of two or more Directors who are disinterested within the meaning of Rule
16b-3.
“Company” means Commerce Energy Group, Inc., a Delaware corporation; provided, however, that
in the event the Company reincorporates to another jurisdiction, all references to the term
“Company” shall refer to the Company in such new jurisdiction.
“Consultant” means any person, including an advisor, who is engaged by the Company or any
Affiliate to render services and is compensated for such services.
“Continuous Service” means the absence of any interruption or termination of service as an
Employee, Director, or Consultant. Continuous Service shall not be considered interrupted in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than 90 days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute, or unless provided
otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from
Director to advisory director or emeritus status; or (v) in the case of transfers between locations
of the Company or between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not constitute an
interruption of Continuous Service.
“Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.
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“Director” means a member of the Board, or a member of the board of directors of an Affiliate.
“Disabled” means a condition under which a Participant —
(a) is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or
(b) is, by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than
12 months, received income replacement benefits for a period of not less than 3 months under an
accident or health plan covering employees of the Company.
“Eligible Person” means any Consultant, Director or Employee and includes non-Employees to
whom an offer of employment has been extended.
“Employee” means any person whom the Company or any Affiliate classifies as an employee
(including an officer) for employment tax purposes, whether or not that classification is correct.
The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute
“employment” of such Director by the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the closing
price of a Share on the New York Stock Exchange or the American Stock Exchange (collectively, the
“Exchange”), on the Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (ii) if such stock is
not traded on the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the last
sales price (if the stock is then listed as a National Market Issue under The Nasdaq National
Market System) or (B) the mean between the closing representative bid and asked prices (in all
other cases) for the stock on the Determination Date as reported by NASDAQ or such successor
quotation system; or (iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative bid and asked prices
on the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair market value
established in good faith by the Board.
“Grant Date” has the meaning set forth in Section 14 of the Plan.
“Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as designated in the
applicable Award Agreement.
“Involuntary Termination” means termination of a Participant’s Continuous Service under the
following circumstances occurring on or after a Change in Control: (i) termination without Cause by
the Company or an Affiliate or successor thereto, as appropriate; or (ii) voluntary termination by
the Participant within 60 days following (A) a material reduction in the Participant’s job
responsibilities, provided that neither a mere change in title alone nor reassignment to a
substantially similar position shall constitute a material reduction in job responsibilities; (B)
an involuntary relocation of the Participant’s work site to a facility or location more than 50
miles from the Participant’s principal work site at the time of the Change in Control; or (C) a
material reduction in Participant’s total compensation other than as part of an reduction by the
same percentage amount in the compensation of all other similarly-situated Employees, Directors or
Consultants.
“Non-ISO” means an Option not intended to qualify as an ISO, as designated in the applicable
Award Agreement.
“Option” means any stock option granted pursuant to Section 6 of the Plan.
“Participant” means any holder of one or more Awards, or the Shares issuable or issued upon
exercise of such Awards, under the Plan.
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“Performance Awards” mean Performance Units and Performance Compensation Awards granted
pursuant to Section 10.
“Performance Compensation Awards” mean Awards granted pursuant to Section 10(b) of the Plan.
“Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan which may be
paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole
discretion shall determine.
“Person” means any natural person, association, trust, business trust, cooperative,
corporation, general partnership, joint venture, joint-stock company, limited partnership, limited
liability company, real estate investment trust, regulatory body, governmental agency or
instrumentality, unincorporated organization or organizational entity.
“Plan” means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.
“Reporting Person” means an officer, Director, or greater than ten percent shareholder of the
Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports
pursuant to Rule 16a-3 under the Exchange Act.
“Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 8 of the
Plan.
“Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to
time, or any successor provision.
“SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7 of the Plan.
“Share” means a share of common stock of the Company, par value $0.001, as adjusted in
accordance with Section 13 of the Plan.
“Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company or any Affiliate.
“Unrestricted Shares” mean Shares awarded pursuant to Section 8 of the Plan.
EXHIBIT B
MEMORANDUM
Commerce Energy Group, Inc.
2006 Stock Incentive Plan
COMMON STOCK
($0.001 PAR VALUE)
($0.001 PAR VALUE)
This Memorandum relates to shares of common stock, $0.001 par value per share (the
“Common Stock”), of Commerce Energy Group, Inc., a Delaware corporation (the “Company”), issuable
in satisfaction of awards made under Commerce Energy Group, Inc.’s 2006 Stock Incentive Plan (the
“Plan”) to eligible employees, consultants and directors of the Company. Stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted shares, deferred share
units, performance shares and performance units may be awarded under the Plan.
The date of this Memorandum is May 8, 2006.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THIS MEMORANDUM AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION 10(a) PROSPECTUS UNDER THE SECURITIES ACT.
UNDER THE SECURITIES ACT OF 1933. THIS MEMORANDUM AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION 10(a) PROSPECTUS UNDER THE SECURITIES ACT.
COMMERCE ENERGY GROUP, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Commerce Energy Group, Inc.
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This Memorandum does not constitute an offer to sell or a solicitation of an offer to buy
any securities other than the registered securities to which it relates or an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation.
Neither delivery of this Memorandum nor any sale made thereunder shall, under any
circumstances, create any implication that there has been no change in the affairs of the Company
or in any information included therein, in any supplement thereto or in any document incorporated
by reference since the date hereof or thereof.
GENERAL
This Memorandum relates to shares of common stock, $0.001 par value per share (the “Common
Stock”), of Commerce Energy Group, Inc., a Delaware corporation (the “Company”), issuable in
satisfaction of awards under the Company’s 2006 Stock Incentive Plan (the “Plan”) to eligible
employees, consultants and directors of the Company. Stock options, share appreciation rights,
restricted shares, restricted share units, unrestricted shares, deferred share units, performance
shares and performance units may be awarded under the Plan, though only employees may receive stock
options classified as incentive stock options (“ISOs”) which are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Options
awarded under the Plan may be either ISOs or non-qualified stock options (“non-ISOs”) which are not
intended to qualify as ISOs. Share appreciation rights may be granted in tandem with options or as
free-standing awards. Options, share appreciation rights, restricted shares, restricted share
units, unrestricted shares, deferred shares, and performance awards vest in accordance with the
terms established by the committee administering the Plan, which may include conditions relating to
completion of a specified period of service or achievement of performance standards.
Any person deemed to be an “affiliate” of the Company may re-offer or resell shares of Common
Stock acquired pursuant to the Plan without registration under the Securities Act of 1933, as
amended (the “Act”), upon compliance with Rule 144 under the Act. Participants who are not
“affiliates” of the Company may resell the shares of Common Stock acquired pursuant to the Plan
without the need to comply with Rule 144. For purposes of Rule 144, an “affiliate” of an issuer is
a person that directly or indirectly, through the use of one or more intermediaries, controls, or
is controlled by, or is under common control with, such issuer. Acquisitions of shares, exercises
of options or other transactions involving shares of Common Stock pursuant to the Plan by our
directors, executive officers or a 10% stockholder could be subject to the provisions of Section
16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”).
The Plan became effective as of January 26, 2006, the date that it was approved by the
Company’s Stockholders. As currently operating, the Plan is not qualified under Section 401(a) of
the Code and is not subject to the provisions of the Employee Retirement Income Security Act of
1974. The complete text of the Plan appears below under the caption “2006 Stock Incentive Plan.”
2006 STOCK INCENTIVE PLAN
1. Establishment, Purpose, and Types of Awards
Commerce Energy Group, Inc. (the “Company”) hereby establishes this equity-based incentive
compensation plan to be known as the “Commerce Energy Group, Inc. 2006 Stock Incentive Plan”
(hereinafter referred to as the “Plan”), in order to provide incentives and awards to select
employees, directors, consultants, and advisors of the Company and its Affiliates.
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The Plan permits the granting of the following types of awards (“Awards”), according to the
Sections of the Plan listed here:
Section 6 Options
Section 7 Share Appreciation Rights
Section 8 Restricted Shares, Restricted Share Units, and Unrestricted Shares
Section 9 Deferred Share Units
Section 10 Performance Awards
Section 7 Share Appreciation Rights
Section 8 Restricted Shares, Restricted Share Units, and Unrestricted Shares
Section 9 Deferred Share Units
Section 10 Performance Awards
The Plan is not intended to affect and shall not affect any stock options, equity-based
compensation, or other benefits that the Company or its Affiliates may have provided, or may
separately provide in the future pursuant to any agreement, plan, or program that is independent of
this Plan.
2. Defined Terms
Terms in the Plan that begin with an initial capital letter have the defined meaning set forth
in Appendix A, unless defined elsewhere in this Plan or the context of their use clearly indicates
a different meaning.
3. Shares Subject to the Plan
Subject to the provisions of Section 13 of the Plan, the maximum number of Shares that the
Company may issue for all Awards is 1,453,334 Shares, provided that the Company shall not make
additional awards under the Commonwealth Energy Corporation 1999 Equity Incentive Plan, as amended
and assumed by Commerce Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan
may be authorized but unissued Shares, or Shares that the Company has reacquired or otherwise holds
in treasury.
Shares that are subject to an Award that for any reason expires, is forfeited, is cancelled,
or becomes unexercisable, and Shares that are for any other reason not paid or delivered under the
Plan shall again, except to the extent prohibited by Applicable Law, be available for subsequent
Awards under the Plan. In addition, the Committee may make future Awards with respect to Shares
that the Company retains from otherwise delivering pursuant to an Award either (i) as payment of
the exercise price of an Award, or (ii) in order to satisfy the withholding or employment taxes due
upon the grant, exercise, vesting or distribution of an Award. Notwithstanding the foregoing, but
subject to adjustments pursuant to Section 13 below, the number of Shares that are available for
ISO Awards shall be determined, to the extent required under applicable tax laws, by reducing the
number of Shares designated in the preceding paragraph by the number of Shares granted pursuant to
Awards (whether or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or surrendered in
payment of the Exercise Price for an Award shall be available for issuance pursuant to future ISO
Awards.
4. Administration
(a) General. The Committee shall administer the Plan in accordance with its terms, provided
that the Board may act in lieu of the Committee on any matter. The Committee shall hold meetings at
such times and places as it may determine and shall make such rules and regulations for the conduct of its
business as it deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as the Committee for
all purposes of the Plan.
(b) Committee Composition. The Board shall appoint the members of the Committee. If and to
the extent permitted by Applicable Law, the Committee may authorize one or more Reporting Persons
(or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or other
officers whom the
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Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the Committee with or
without Cause, and fill vacancies on the Committee however caused.
(c) Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have
the authority, in its sole discretion:
(i) to determine Eligible Persons to whom Awards shall be granted from time to time and the
number of Shares, units, or SARs to be covered by each Award;
(ii) to determine, from time to time, the Fair Market Value of Shares;
(iii) to determine, and to set forth in Award Agreements, the terms and conditions of all
Awards, including any applicable exercise or purchase price, the installments and conditions
under which an Award shall become vested (which may be based on performance), terminated,
expired, cancelled, or replaced, and the circumstances for vesting acceleration or waiver of
forfeiture restrictions, and other restrictions and limitations;
(iv) to approve the forms of Award Agreements and all other documents, notices and
certificates in connection therewith which need not be identical either as to type of Award or
among Participants;
(v) to construe and interpret the terms of the Plan and any Award Agreement, to determine
the meaning of their terms, and to prescribe, amend, and rescind rules and procedures relating
to the Plan and its administration; and
(vi) in order to fulfill the purposes of the Plan and without amending the Plan, modify,
cancel, or waive the Company’s rights with respect to any Awards, to adjust or to modify Award
Agreements for changes in Applicable Law, and to recognize differences in foreign law, tax
policies, or customs; and
(vii) to make all other interpretations and to take all other actions that the Committee
may consider necessary or advisable to administer the Plan or to effectuate its purposes.
Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may
delegate administrative functions to individuals who are Reporting Persons, officers, or Employees
of the Company or its Affiliates.
(d) Deference to Committee Determinations. The Committee shall have the discretion to
interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to
be appropriate in its sole discretion, and to make any findings of fact needed in the
administration of the Plan or Award Agreements. The Committee’s prior exercise of its discretionary
authority shall not obligate it to exercise its authority in a like fashion thereafter. The
Committee’s interpretation and construction of any provision of the Plan, or of any Award or Award
Agreement, shall be final, binding, and conclusive. The validity of any such interpretation,
construction, decision or finding of fact shall not be given de novo review if challenged in
court, by arbitration, or in any other forum, and shall be upheld unless clearly made in bad
faith or materially affected by fraud.
(e) No Liability; Indemnification. Neither the Board nor any Committee member, nor any Person
acting at the direction of the Board or the Committee, shall be liable for any act, omission,
interpretation, construction or determination made in good faith with respect to the Plan, any
Award or any Award Agreement. The Company and its Affiliates shall pay or reimburse any member of
the Committee, as well as any Director,
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Employee, or Consultant who takes action in connection with
the Plan, for all expenses incurred with respect to the Plan, and to the full extent allowable
under Applicable Law shall indemnify each and every one of them for any claims, liabilities, and
costs (including reasonable attorney’s fees) arising out of their good faith performance of duties
under the Plan. The Company and its Affiliates may obtain liability insurance for this purpose.
5. Eligibility
(a) General Rule. The Committee may grant ISOs only to Employees (including officers who are
Employees) of the Company or an Affiliate that is a “parent corporation” or “subsidiary
corporation” within the meaning of Section 424 of the Code, and may grant all other Awards to any
Eligible Person. A Participant who has been granted an Award may be granted an additional Award or
Awards if the Committee shall so determine, if such person is otherwise an Eligible Person and if
otherwise in accordance with the terms of the Plan.
(b) Grant of Awards. Subject to the express provisions of the Plan, the Committee shall
determine from the class of Eligible Persons those individuals to whom Awards under the Plan may be
granted, the number of Shares subject to each Award, the price (if any) to be paid for the Shares
or the Award and, in the case of Performance Awards, in addition to the matters addressed in
Section 10 below, the specific objectives, goals and performance criteria that further define the
Performance Award. Each Award shall be evidenced by an Award Agreement signed by the Company and,
if required by the Committee, by the Participant. The Award Agreement shall set forth the material
terms and conditions of the Award established by the Committee, and each Award shall be subject to
the terms and conditions set forth in Sections 23, 24, and 25 unless otherwise specifically
provided in an Award Agreement.
(c) Limits on Awards. During any calendar year, no Participant may receive Options and SARs
that relate to more than 1,000,000 Shares. The Committee will adjust this limitation pursuant to
Section 13 below.
(d) Replacement Awards. Subject to Applicable Laws (including any associated Shareholder
approval requirements), the Committee may, in its sole discretion and upon such terms as it deems
appropriate, require as a condition of the grant of an Award to a Participant that the Participant
surrender for cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such surrender may or
may not be the same type of Award, may cover the same (or a lesser or greater) number of Shares as
such surrendered Award, may have other terms that are determined without regard to the terms or
conditions of such surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an Exercise Price that is
lower than the Exercise Price of the surrendered Option unless the Company’s shareholders approve
the grant itself or the program under which the grant is made pursuant to the Plan.
6. Option Awards
(a) Types; Documentation. The Committee may in its discretion grant ISOs to any Employee and
Non-ISOs to any Eligible Person, and shall evidence any such grants in an Award Agreement that is
delivered to the
Participant. Each Option shall be designated in the Award Agreement as an ISO or a Non-ISO,
and the same Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon the grant thereof,
or only after the occurrence of a specified event, or only in installments, which installments may
vary. Options granted under the Plan may contain such terms and provisions not inconsistent with
the Plan that the Committee shall deem advisable in its sole and absolute discretion.
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(b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value of Shares
with respect to which Options designated as ISOs first become exercisable by a Participant in any
calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds
$100,000, such excess Options shall be treated as Non-ISOs. For purposes of determining whether the
$100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be
determined as of the Grant Date. In reducing the number of Options treated as ISOs to meet the
$100,000 limit, the most recently granted Options shall be reduced first. In the event that Section
422 of the Code is amended to alter the limitation set forth therein, the limitation of this
Section 6(b) shall be automatically adjusted accordingly.
(c) Term of Options. Each Award Agreement shall specify a term at the end of which the Option
automatically expires, subject to earlier termination provisions contained in Section 6(h) hereof;
provided, that, the term of any Option may not exceed ten years from the Grant Date. In the case of
an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date, the term of the ISO
shall not exceed five years from the Grant Date.
(d) Exercise Price. The exercise price of an Option shall be determined by the Committee in
its sole discretion and shall be set forth in the Award Agreement, provided that (i) if an ISO is
granted to an Employee who on the Grant Date is a Ten Percent Holder, the per Share exercise price
shall not be less than 110% of the Fair Market Value per Share on the Grant Date, and (ii) for all
other Options, such per Share exercise price shall not be less than 100% of the Fair Market Value
per Share on the Grant Date. Neither the Company nor the Committee shall, without shareholder
approval, allow for a repricing within the meaning of the federal securities laws applicable to
proxy statement disclosures.
(e) Exercise of Option. The times, circumstances and conditions under which an Option shall
be exercisable shall be determined by the Committee in its sole discretion and set forth in the
Award Agreement. The Committee shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that
in the absence of such determination, vesting of Options shall be tolled during any such leave
approved by the Company.
(f) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share.
The Committee may require in an Award Agreement that an Option be exercised as to a minimum number
of Shares, provided that such requirement shall not prevent a Participant from purchasing the full
number of Shares as to which the Option is then exercisable.
(g) Methods of Exercise. Prior to its expiration pursuant to the terms of the applicable
Award Agreement, and subject to the times, circumstances and conditions for exercise contained in
the applicable Award Agreement, each Option may be exercised, in whole or in part (provided that
the Company shall not be required to issue fractional shares), by delivery of written notice of
exercise to the secretary of the Company accompanied by the full exercise price of the Shares being
purchased. In the case of an ISO, the Committee shall determine the acceptable methods of payment
on the Grant Date and it shall be included in the applicable Award Agreement. The methods of
payment that the Committee may in its discretion accept or commit to accept in an Award Agreement
include:
(i) cash or check payable to the Company (in U.S. dollars);
(ii) other Shares that (A) are owned by the Participant who is purchasing Shares pursuant
to an Option, (B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is being exercised, (C) were not acquired by
such Participant pursuant to the exercise of an Option, unless such Shares have been owned by
such Participant for at least six months or such other period as the Committee may determine,
(D) are all, at the time of such surrender, free and
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clear of any and all claims, pledges, liens
and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to or by the Company (other than such restrictions as may have existed prior to an
issuance of such Shares by the Company to such Participant), and (E) are duly endorsed for
transfer to the Company;
(iii) a cashless exercise program that the Committee may approve, from time to time in its
discretion, pursuant to which a Participant may concurrently provide irrevocable instructions
(A) to such Participant’s broker or dealer to effect the immediate sale of the purchased Shares
and remit to the Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the exercise price of the Option plus all applicable taxes required to be
withheld by the Company by reason of such exercise, and (B) to the Company to deliver the
certificates for the purchased Shares directly to such broker or dealer in order to complete the
sale; or
(iv) any combination of the foregoing methods of payment.
The Company shall not be required to deliver Shares pursuant to the exercise of an Option
until payment of the full exercise price therefore is received by the Company.
(h) Termination of Continuous Service. The Committee may establish and set forth in the
applicable Award Agreement the terms and conditions on which an Option shall remain exercisable, if
at all, following termination of a Participant’s Continuous Service. The Committee may waive or
modify these provisions at any time. To the extent that a Participant is not entitled to exercise
an Option at the date of his or her termination of Continuous Service, or if the Participant (or
other person entitled to exercise the Option) does not exercise the Option to the extent so
entitled within the time specified in the Award Agreement or below (as applicable), the Option
shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the
Plan and become available for future Awards. In no event may any Option be exercised after the
expiration of the Option term as set forth in the Award Agreement.
The following provisions shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an Option shall terminate when there is a termination of a
Participant’s Continuous Service:
(i) Termination other than Upon Disability or Death or for Cause. In the event of
termination of a Participant’s Continuous Service (other than as a result of Participant’s
death, disability, retirement or termination for Cause), the Participant shall have the right to
exercise an Option at any time within 90 days following such termination to the extent the
Participant was entitled to exercise such Option at the date of such termination.
(ii) Disability. In the event of termination of a Participant’s Continuous Service as a
result of his or her being Disabled, the Participant shall have the right to exercise an Option
at any time within one year following such termination to the extent the Participant was
entitled to exercise such Option at the date of such termination.
(iii) Retirement. In the event of termination of a Participant’s Continuous Service as a
result of Participant’s retirement, the Participant shall have the right to exercise the Option
at any time within six months following such termination to the extent the Participant was
entitled to exercise such Option at the date of such termination.
(iv) Death. In the event of the death of a Participant during the period of Continuous
Service since the Grant Date of an Option, or within thirty days following termination of the
Participant’s Continuous
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Service, the Option may be exercised, at any time within one year following the date of
the Participant’s death, by the Participant’s estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to the extent the
right to exercise the Option had vested at the date of death or, if earlier, the date the
Participant’s Continuous Service terminated.
(v) Cause. If the Committee determines that a Participant’s Continuous Service terminated
due to Cause, the Participant shall immediately forfeit the right to exercise any Option, and it
shall be considered immediately null and void.
(i) Reverse Vesting. The Committee in its sole discretion may allow a Participant to exercise
unvested Options, in which case the Shares then issued shall be Restricted Shares having analogous
vesting restrictions to the unvested Options.
(j) Buyout Provisions. The Committee may at any time offer to buy out an Option, in exchange
for a payment in cash or Shares, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such offer is made.
7. Share Appreciate Rights (SARs)
(a) Grants. The Committee may in its discretion grant Share Appreciation Rights to any
Eligible Person, in any of the following forms:
(i) SARs related to Options. The Committee may grant SARs either concurrently with the
grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend
to all or a portion of the Shares covered by the related Option. An SAR shall entitle the
Participant who holds the related Option, upon exercise of the SAR and surrender of the related
Option, or portion thereof, to the extent the SAR and related Option each were previously
unexercised, to receive payment of an amount determined pursuant to Section 7(e) below. Any SAR
granted in connection with an ISO will contain such terms as may be required to comply with the
provisions of Section 422 of the Code and the regulations promulgated thereunder.
(ii) SARs Independent of Options. The Committee may grant SARs which are independent of
any Option subject to such conditions as the Committee may in its discretion determine, which
conditions will be set forth in the applicable Award Agreement.
(iii) Limited SARs. The Committee may grant SARs exercisable only upon or in respect of a
Change in Control or any other specified event, and such limited SARs may relate to or operate
in tandem or combination with or substitution for Options or other SARs, or on a stand-alone
basis, and may be payable in cash or Shares based on the spread between the exercise price of
the SAR, and (A) a price based upon or equal to the Fair Market Value of the Shares during a
specified period, at a specified time within a specified period before, after or including the
date of such event, or (B) a price related to consideration payable to Company’s shareholders
generally in connection with the event.
(b) Exercise Price. The per Share exercise price of an SAR shall be determined in the sole
discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no
less than 100% of the Fair Market Value of one Share. The exercise price of an SAR related to an
Option shall be the same as the exercise price of the related Option. Neither the Company nor the
Committee shall, without shareholder approval, allow for a repricing within the meaning of federal
securities laws applicable to proxy statement disclosures.
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(c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR related to an
Option will be exercisable at such time or times, and to the extent, that the related Option will
be exercisable; provided that the Award Agreement shall not, without the approval of the
shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more
favorable to the Participant than the exercise period for the related Option. An SAR may not have a
term exceeding ten years from its Grant Date. An SAR granted independently of any other Award will
be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of
the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related Option. Whether an SAR
is related to an Option or is granted independently, the SAR may only be exercised when the Fair
Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.
(d) Effect on Available Shares. All SARs that may be settled in shares of the Company’s stock
shall be counted in full against the number of shares available for award under the Plan,
regardless of the number of shares actually issued upon settlement of the SARs.
(e) Payment. Upon exercise of an SAR related to an Option and the attendant surrender of an
exercisable portion of any related Award, the Participant will be entitled to receive payment of an
amount determined by multiplying —
(i) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over
the exercise price per Share of the SAR, by
(ii) the number of Shares with respect to which the SAR has been exercised.
Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the
amount payable to the Participant to a percentage, specified in the Award Agreement but not
exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence,
and (ii) shall be subject to any payment or other restrictions that the Committee may at any time
impose in its discretion, including restrictions intended to conform the SARs with Section 409A of
the Code.
(f) Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its sole
discretion, settle the amount determined under Section 7(e) above solely in cash, solely in Shares
(valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and
partly in Shares, with cash paid in lieu of fractional shares. Unless otherwise provided in an
Award Agreement, all SARs shall be settled in Shares as soon as practicable after exercise.
(g) Termination of Employment or Consulting Relationship. The Committee shall establish and
set forth in the applicable Award Agreement the terms and conditions on which an SAR shall remain
exercisable, if at all, following termination of a Participant’s Continuous Service. The provisions
of Section 6(h) above shall apply to the extent an Award Agreement does not specify the terms and
conditions upon which an SAR shall terminate when there is a termination of a Participant’s
Continuous Service.
(h) Buy out. The Committee has the same discretion to buy out SARs as it has to take such
actions pursuant to Section 6(j) above with respect to Options.
8. Restricted Shares, Restricted Share Units, and Unrestricted Shares
(a) Grants. The Committee may in its sole discretion grant restricted shares (“Restricted
Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant and that sets forth the number of Restricted Shares, the purchase
price for such Restricted Shares (if any), and the
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terms upon which the Restricted Shares may
become vested. In addition, the Company may in its discretion grant the right to receive Shares
after certain vesting requirements are met (“Restricted Share Units”) to any Eligible Person and
shall evidence such grant in an Award Agreement that is delivered to the Participant which sets
forth the number of Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may become vested. The
Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant
on receiving from the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards hereunder in the
form of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon the date of
grant or such other date as the Committee may determine or which the Committee may issue pursuant
to any program under which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that would otherwise be
paid.
(b) Vesting and Forfeiture. The Committee shall set forth in an Award Agreement granting
Restricted Shares or Restricted Share Units, the terms and conditions under which the Participant’s
interest in the Restricted Shares or the Shares subject to Restricted Share Units will become
vested and non-forfeitable. Except as set forth in the applicable Award Agreement or the Committee
otherwise determines, upon termination of a Participant’s Continuous Service for any other reason,
the Participant shall forfeit his or her Restricted Shares and Restricted Share Units; provided
that if a Participant purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set forth in an Award
Agreement.
(c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue stock
certificates that evidence Restricted Shares pending the lapse of applicable restrictions, and that
bear a legend making appropriate reference to such restrictions. Except as set forth in the
applicable Award Agreement or the Committee otherwise determines, the Company or a third party that
the Company designates shall hold such Restricted Shares and any dividends that accrue with respect
to Restricted Shares pursuant to Section 8(e) below.
(d) Issuance of Shares upon Vesting. As soon as practicable after vesting of a Participant’s
Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s satisfaction
of applicable tax withholding requirements, the Company shall release to the Participant, free from
the vesting restrictions, one Share for each vested Restricted Share (or issue one Share free of
the vesting restriction for each vested Restricted Share Unit), unless an Award Agreement provides
otherwise. No fractional shares shall be distributed, and cash shall be paid in lieu thereof.
(e) Dividends Payable on Vesting. Whenever Shares are released to a Participant or
duly-authorized transferee pursuant to Section 8(d) above as a result of the vesting of Restricted
Shares or the Shares underlying Restricted Share Units are issued to a Participant pursuant to
Section 8(d) above, such Participant or duly-authorized transferee shall also be entitled to
receive (unless otherwise provided in the Award Agreement), with respect to each Share released or
issued, an amount equal to any cash dividends (plus, in the sole discretion of the Committee,
simple interest at a rate as the Committee may determine) and a number of
Shares equal to any stock dividends, which were declared and paid to the holders of Shares
between the Grant Date and the date such Share is released from the vesting restrictions in the
case of Restricted Shares or issued in the case of Restricted Share Units.
(f) Section 83(b) Elections. A Participant may make an election under Section 83(b) of the
Code (the “Section 83(b) Election”) with respect to Restricted Shares. If a Participant who has
received Restricted Share Units provides the Committee with written notice of his or her intention
to make a Section 83(b) Election with respect to the Shares subject to such Restricted Share Units,
the Committee may in its discretion convert
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the Participant’s Restricted Share Units into Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s Restricted
Share Unit Award. The Participant may then make a Section 83(b) Election with respect to those
Restricted Shares. Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.
(g) Deferral Elections. At any time within the thirty-day period (or other shorter or longer
period that the Committee selects in its sole discretion) in which a Participant who is a member of
a select group of management or highly compensated employees (within the meaning of the Code)
receives an Award of either Restricted Shares or Restricted Share Units, the Committee may permit
the Participant to irrevocably elect, on a form provided by and acceptable to the Committee, to
defer the receipt of all or a percentage of the Shares that would otherwise be transferred to the
Participant upon the vesting of such Award. If the Participant makes this election, the Shares
subject to the election, and any associated dividends and interest, shall be credited to an account
established pursuant to Section 9 hereof on the date such Shares would otherwise have been released
or issued to the Participant pursuant to Section 8(d) above.
9. Deferred Share Units
(a) Elections to Defer. The Committee may permit any Eligible Person who is a Director,
Consultant or member of a select group of management or highly compensated employees (within the
meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the Committee
(the “Election Form”), to forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a Section 83(b) Election
has been made), and in lieu thereof to have the Company credit to an internal Plan account (the
“Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market Value
equal to the Shares and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall take effect on the
first day of the next calendar year (or on the first day of the next calendar month in the case of
an initial election by a Participant who first becomes eligible to defer hereunder) after its
delivery to the Company, subject to Section 8(g) regarding deferral of Restricted Shares and
Restricted Share Units and to Section 10(e) regarding deferral of Performance Awards, unless the
Company sends the Participant a written notice explaining why the Election Form is invalid within
five business days after the Company receives it. Notwithstanding the foregoing sentence: (i)
Election Forms shall be ineffective with respect to any compensation that a Participant earns
before the date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.
(b) Vesting. Unless an Award Agreement expressly provides otherwise, each Participant shall
be 100% vested at all times in any Shares subject to Deferred Share Units.
(c) Issuances of Shares. The Company shall provide a Participant with one Share for each
Deferred Share Unit in five substantially equal annual installments that are issued before the last
day of each of the five calendar years that end after the date on which the Participant’s
Continuous Service terminates, unless —
(i) the Participant has properly elected a different form of distribution, on a form
approved by the Committee, that permits the Participant to select any combination of a lump sum
and annual installments that are completed within ten years following termination of the
Participant’s Continuous Service, and
(ii) the Company received the Participant’s distribution election form at the time the
Participant elects to defer the receipt of cash or other compensation pursuant to Section 9(a),
provided that such election may be changed through any subsequent election that (i) is delivered
to the Company at least one year before the date on which distributions are otherwise scheduled
to commence pursuant to the Participant’s
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election, and (ii) defers the commencement of
distributions by at least five years from the originally scheduled commencement date.
Fractional shares shall not be issued, and instead shall be paid out in cash.
(d) Crediting of Dividends. Whenever Shares are issued to a Participant pursuant to Section
9(c) above, such Participant shall also be entitled to receive, with respect to each Share issued,
a cash amount equal to any cash dividends (plus simple interest at a rate of five percent per
annum, or such other reasonable rate as the Committee may determine), and a number of Shares equal
to any stock dividends which were declared and paid to the holders of Shares between the Grant Date
and the date such Share is issued.
(e) Emergency Withdrawals. In the event a Participant suffers an unforeseeable emergency
within the contemplation of this Section and Section 409A of the Code, the Participant may apply to
the Company for an immediate distribution of all or a portion of the Participant’s Deferred Share
Units. The unforeseeable emergency must result from a sudden and unexpected illness or accident of
the Participant, the Participant’s spouse, or a dependent (within the meaning of Section 152(a) of
the Code) of the Participant, casualty loss of the Participant’s property, or other similar
extraordinary and unforeseeable conditions beyond the control of the Participant. Examples of
purposes which are not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made to the extent the
unforeseeable emergency could be relieved through reimbursement or compensation by insurance or
otherwise, or by liquidation of the Participant’s nonessential assets to the extent such
liquidation would not itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant’s unforeseeable
emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution. The Committee shall determine whether a Participant has a qualifying unforeseeable
emergency and the amount which qualifies for distribution, if any. The Committee may require
evidence of the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.
(f) Unsecured Rights to Deferred Compensation. A Participant’s right to Deferred Share Units
shall at all times constitute an unsecured promise of the Company to pay benefits as they come due.
The right of the Participant or the Participant’s duly-authorized transferee to receive benefits
hereunder shall be solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant’s duly-authorized transferee shall have any claim against or rights
in any specific assets, shares, or other funds of the Company.
10. Performance Awards
(a) Performance Units. Subject to the limitations set forth in paragraph (c) hereof, the
Committee may in its discretion grant Performance Units to any Eligible Person and shall evidence
such grant in an Award Agreement that is delivered to the Participant which sets forth the terms
and conditions of the Award.
(b) Performance Compensation Awards. Subject to the limitations set forth in paragraph (c)
hereof, the Committee may, at the time of grant of a Performance Unit, designate such Award as a
“Performance Compensation Award” (payable in cash or Shares) in order that such Award constitutes
“qualified performance-based compensation” under Code Section 162(m), in which event the Committee
shall have the power to grant such Performance Compensation Award upon terms and conditions that
qualify it as “qualified performance-based compensation” within the meaning of Code Section 162(m).
With respect to each such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a “Performance Period,” “Performance
Measure(s)”, and “Performance Formula(e)” (each such term being hereinafter defined). Once
established for a Performance Period, the
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Performance Measure(s) and Performance Formula(e) shall not be amended or otherwise modified to the extent such amendment or modification would cause the
compensation payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).
A Participant shall be eligible to receive payment in respect of a Performance Compensation
Award only to the extent that the Performance Measure(s) for such Award is achieved and the
Performance Formula(e) as applied against such Performance Measure(s) determines that all or some
portion of such Participant’s Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall review and certify in
writing whether, and to what extent, the Performance Measure(s) for the Performance Period have
been achieved and, if so, determine and certify in writing the amount of the Performance
Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon
such performance.
(c) Limitations on Awards. The maximum Performance Unit Award and the maximum Performance
Compensation Award that any one Participant may receive for any one Performance Period shall not
together exceed 1,000,000 Shares and $1,000,000 in cash. The Committee shall have the discretion to
provide in any Award Agreement that any amounts earned in excess of these limitations will either
be credited as Deferred Share Units, or as deferred cash compensation under a separate plan of the
Company (provided in the latter case that such deferred compensation either bears a reasonable rate
of interest or has a value based on one or more predetermined actual investments). Any amounts for
which payment to the Participant is deferred pursuant to the preceding sentence shall be paid to
the Participant in a future year or years not earlier than, and only to the extent that, the
Participant is either not receiving compensation in excess of these limits for a Performance
Period, or is not subject to the restrictions set forth under Section 162(b) of the Code.
(d) Definitions.
(i) “Performance Formula” means, for a Performance Period, one or more objective formulas
or standards established by the Committee for purposes of determining whether or the extent to
which an Award has been earned based on the level of performance attained or to be attained with
respect to one or more Performance Measure(s). Performance Formulae may vary from Performance
Period to Performance Period and from Participant to Participant and may be established on a
stand-alone basis, in tandem or in the alternative.
(ii) “Performance Measure” means one or more of the following selected by the Committee to
measure Company, Affiliate, and/or business unit performance for a Performance Period, whether
in absolute or relative terms (including, without limitation, terms relative to a peer group or
index): basic, diluted, or adjusted earnings per share; sales or revenue; earnings before
interest, taxes, and other adjustments (in total or on a per share basis); basic or adjusted net
income; returns on equity, assets, capital, revenue or similar measure; economic value added;
working capital; total shareholder return; and product development, product market share,
research, licensing, litigation, human resources, information services, mergers, acquisitions,
sales of assets of Affiliates or business units. Each such measure shall be, to the extent
applicable, determined in accordance with generally accepted accounting principles as
consistently applied by the Company (or such other standard applied by the Committee) and, if so
determined by the Committee, and in the case of a Performance Compensation Award, to the extent
permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain
or loss on the disposal of a business segment, unusual or infrequently occurring events and
transactions and cumulative effects of changes in accounting principles. Performance Measures
may vary from Performance Period to Performance Period and from Participant to Participant, and
may be established on a stand-alone basis, in tandem or in the alternative.
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(iii) “Performance Period” means one or more periods of time (of not less than one fiscal
year of the Company), as the Committee may designate, over which the attainment of one or more
Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in
respect of an Award.
(e) Deferral Elections. At any time prior to the date that is at least six months before the
close of a Performance Period (or shorter or longer period that the Committee selects) with respect
to an Award of either Performance Units or Performance Compensation, the Committee may permit a
Participant who is a member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the cash or Shares that would otherwise
be transferred to the Participant upon the vesting of such Award. If the Participant makes this
election, the cash or Shares subject to the election, and any associated interest and dividends,
shall be credited to an account established pursuant to Section 9 hereof on the date such cash or
Shares would otherwise have been released or issued to the Participant pursuant to Section 10(a) or
Section 10(b) above.
11. Taxes
(a) General. As a condition to the issuance or distribution of Shares pursuant to the Plan,
the Participant (or in the case of the Participant’s death, the person who succeeds to the
Participant’s rights) shall make such arrangements as the Company may require for the satisfaction
of any applicable federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be required to issue
any Shares until such obligations are satisfied. If the Committee allows the withholding or
surrender of Shares to satisfy a Participant’s tax withholding obligations, the Committee shall not allow Shares to be withheld
in an amount that exceeds the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes.
(b) Default Rule for Employees. In the absence of any other arrangement, an Employee shall be
deemed to have directed the Company to withhold or collect from his or her cash compensation an
amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable
after the date of the exercise of an Award.
(c) Special Rules. In the case of a Participant other than an Employee (or in the case of an
Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with
respect to any remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that number of Shares
having a Fair Market Value determined as of the applicable Tax Date (as defined below) or cash
equal to the amount required to be withheld. For purposes of this Section 11, the Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld
is to be determined under the Applicable Law (the “Tax Date”).
(d) Surrender of Shares. If permitted by the Committee, in its discretion, a Participant may
satisfy the minimum applicable tax withholding and employment tax obligations associated with an
Award by surrendering Shares to the Company (including Shares that would otherwise be issued
pursuant to the Award) that have a Fair Market Value determined as of the applicable Tax Date equal
to the amount required to be withheld. In the case of Shares previously acquired from the Company
that are surrendered under this Section 11, such Shares must have been owned by the Participant for
more than six months on the date of surrender (or such longer period of time the Company may in its
discretion require).
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(e) Income Taxes and Deferred Compensation. Participants are solely responsible and liable
for the satisfaction of all taxes and penalties that may arise in connection with Awards (including
any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to
indemnify or otherwise hold any Participant harmless from any or all of such taxes. The Committee
shall have the discretion to organize any deferral program, to require deferral election forms, and
to grant or to unilaterally modify any Award in a manner that (i) conforms with the requirements of
Section 409A of the Code with respect to compensation that is deferred and that vests after
December 31, 2004, (ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate Section 409A of the
Code, to make distributions pursuant to the Award at the earliest to occur of a distribution event
that is allowable under Section 409A of the Code or any distribution event that is both allowable
under Section 409A of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second elections to defer in accordance with
Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret the requirements
of the Code, including Section 409A, for purposes of the Plan and all Awards.
12. Non-Transferability of Awards
(a) General. Except as set forth in this Section 12, or as otherwise approved by the
Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution. The designation of a
beneficiary by a Participant will not constitute a transfer. An Award may be exercised, during the
lifetime of the holder of an Award, only by such holder, the duly-authorized legal representative
of a Participant who is Disabled, or a transferee permitted by this Section 12.
(b) Limited Transferability Rights. Notwithstanding anything else in this Section 12, the
Committee may in its discretion provide in an Award Agreement that an Award other than an ISO may
be transferred, on such terms and conditions as the Committee deems appropriate, either (i) by
instrument to the Participant’s “Immediate Family” (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the
Participant’s designated beneficiaries, or (iii) by gift to charitable institutions. Any transferee
of the Participant’s rights shall succeed and be subject to all of the terms of the applicable
Award Agreement and the Plan. “Immediate Family” means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
13. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions
(a) Changes in Capitalization. The Committee shall equitably adjust the number of Shares
covered by each outstanding Award, and the number of Shares that have been authorized for issuance
under the Plan but as to which no Awards have yet been granted or that have been returned to the
Plan upon cancellation, forfeiture, or expiration of an Award, as well as the price per Share
covered by each such outstanding Award, to reflect any increase or decrease in the number of issued
Shares resulting from a stock-split, reverse stock-split, stock dividend, combination,
recapitalization or reclassification of the Shares, or any other increase or decrease in the number
of issued Shares effected without receipt of consideration by the Company. In the event of any such
transaction or event, the Committee may provide in substitution for any or all outstanding Options
under the Plan such alternative consideration (including securities of any surviving entity) as it
may in good faith determine to be equitable under the circumstances and may require in connection
therewith the surrender of all Options so replaced. In any case, such substitution of securities
shall not require the consent of any person who is granted Options pursuant to the Plan. Except as
expressly provided herein, or in an Award Agreement, if the Company issues for consideration shares
of stock of any class or securities
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convertible into shares of stock of any class, the issuance
shall not affect, and no adjustment by reason thereof shall be required to be made with respect to
the number or price of Shares subject to any Award.
(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company
other than as part of a Change of Control, each Award will terminate immediately prior to the
consummation of such action, subject to the ability of the Committee to exercise any discretion
authorized in the case of a Change in Control.
(c) Change in Control. In the event of a Change in Control, the Committee may in its sole and
absolute discretion and authority, without obtaining the approval or consent of the Company’s
shareholders or any Participant with respect to his or her outstanding Awards, take one or more of
the following actions:
(i) arrange for or otherwise provide that each outstanding Award shall be assumed or a
substantially similar award shall be substituted by a successor corporation or a parent or
subsidiary of such successor corporation (the “Successor Corporation”);
(ii) accelerate the vesting of Awards so that Awards shall vest (and, to the extent
applicable, become exercisable) as to the Shares that otherwise would have been unvested and
provide that repurchase rights of the Company with respect to Shares issued upon exercise of an
Award shall lapse as to the Shares subject to such repurchase right;
(iii) arrange or otherwise provide for the payment of cash or other consideration to
Participants in exchange for the satisfaction and cancellation of outstanding Awards;
(iv) terminate upon the consummation of the transaction, provided that the Committee may in
its sole discretion provide for vesting of all or some outstanding Awards in full as of a date
immediately prior to consummation of the Change of Control. To the extent that an Award is not
exercised prior to consummation of a transaction in which the Award is not being assumed or
substituted, such Award shall terminate upon such consummation; or
(v) make such other modifications, adjustments or amendments to outstanding Awards or this
Plan as the Committee deems necessary or appropriate, subject however to the terms of Section
15(a) below.
Notwithstanding the above, in the event a Participant holding an Award assumed or substituted
by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor
Corporation in connection with, or within 12 months following consummation of, the Change in
Control, then any assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in the case of
Options and SARs), and any repurchase right applicable to any Shares shall lapse in full, unless an
Award Agreement provides for a more restrictive acceleration or vesting schedule or more
restrictive limitations on the lapse of repurchase rights or otherwise places additional
restrictions, limitations and conditions on an Award. The acceleration of vesting and lapse of
repurchase rights provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant’s termination, unless an Award Agreement provides otherwise.
(d) Certain Distributions. In the event of any distribution to the Company’s shareholders of
securities of any other entity or other assets (other than dividends payable in cash or stock of
the Company) without receipt of consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to reflect the effect of
such distribution.
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14. Time of Granting Awards.
The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes
the determination granting such Award or such other date as is determined by the Committee,
provided that in the case of an ISO, the Grant Date shall be the later of the date on which the
Committee makes the determination granting such ISO or the date of commencement of the
Participant’s employment relationship with the Company.
15. Modification of Awards and Substitution of Options.
(a) Modification, Extension, and Renewal of Awards. Within the limitations of the Plan, the
Committee may modify an Award to accelerate the rate at which an Option or SAR may be exercised
(including without limitation permitting an Option or SAR to be exercised in full without regard to
the installment or vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been exercised), to accelerate
the vesting of any Award, to extend or renew outstanding Awards or to accept the cancellation of
outstanding Awards to the extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to the participant at
a lower exercise price or granting a replacement award of a different type. Notwithstanding the
foregoing provision, no modification of an outstanding Award shall materially and adversely affect
such Participant’s rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally to make the
modification.
(b) Substitution of Options. Notwithstanding any inconsistent provisions or limits under the
Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or otherwise)
all or substantially all of outstanding capital stock or assets of another corporation or in the
event of any reorganization or other transaction qualifying under Section 424 of the Code, the
Committee may, in accordance with the provisions of that Section, substitute Options for options
under the plan of the acquired company provided (i) the excess of the aggregate fair market value
of the shares subject to an option immediately after the substitution over the aggregate option
price of such shares is not more than the similar excess immediately before such substitution and
(ii) the new option does not give persons additional benefits, including any extension of the
exercise period.
16. Term of Plan.
The Plan shall continue in effect for a term of ten (10) years from its effective date as
determined under Section 20 below, unless the Plan is sooner terminated under Section 17 below.
17. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board may from time to
time amend, alter, suspend, discontinue, or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, suspension, or termination of the Plan
shall materially and adversely affect Awards already granted unless either it relates to an
adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the Participant
and the Committee, which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to eliminate provisions
which are no longer necessary as a result of changes in tax or securities laws or regulations, or
in the interpretation thereof.
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18. Conditions Upon Issuance of Shares.
Notwithstanding any other provision of the Plan or any agreement entered into by the Company
pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure,
to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with
Applicable Law, with such compliance determined by the Company in consultation with its legal
counsel.
19. Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
20. Effective Date.
This Plan shall become effective on the date on which it has received approval by a vote of a
majority of the votes cast at a duly held meeting of the Company’s shareholders (or by such other
shareholder vote that the Administrator determines to be sufficient for the issuance of Shares or
stock options according to the Company’s governing documents and applicable state law).
21. Controlling Law.
All disputes relating to or arising from the Plan shall be governed by the internal
substantive laws (and not the laws of conflicts of laws) of the State of Delaware, to the extent
not preempted by United States federal law. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to
be fully effective.
22. Laws And Regulations.
(a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of Options and
SARs under this Plan, and the obligation of the Company to sell or deliver any of its securities
(including, without limitation, Options, Restricted Shares, Restricted Share Units, Deferred Share
Units, and Shares) under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the “Act”), or any
applicable state securities laws prior to the delivery of such Shares, the Company may require, as
a condition to the issuance thereof, that the persons to whom Shares are to be issued represent and
warrant in writing to the Company that such Shares are being acquired by him or her for investment
for his or her own account and not with a view to, for resale in connection with, or with an intent
of participating directly or indirectly in, any distribution of such Shares within the meaning of
the Act, and a legend to that effect may be placed on the certificates representing the Shares.
(b) Other Jurisdictions. To facilitate the making of any grant of an Award under this Plan,
the Committee may provide for such special terms for Awards to Participants who are foreign
nationals or who are employed by the Company or any Affiliate outside of the United States of
America as the Committee may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local laws and procedures
of particular countries. Without limiting the foregoing, the Company is specifically authorized to
adopt rules and procedures regarding the conversion of local currency, taxes, withholding
procedures and handling of stock certificates which vary with the customs and requirements of
particular countries. The Company may adopt sub-plans and establish escrow accounts and trusts as
may be appropriate or applicable to particular locations and countries.
Commerce Energy Group, Inc.
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23. No Shareholder Rights.
Neither a Participant nor any transferee of a Participant shall have any rights as a
shareholder of the Company with respect to any Shares underlying any Award until the date of
issuance of a share certificate to a Participant or a transferee of a Participant for such Shares
in accordance with the Company’s governing instruments and Applicable Law. Prior to the issuance of
Shares pursuant to an Award, a Participant shall not have the right to vote or to receive dividends
or any other rights as a shareholder with respect to the Shares underlying the Award,
notwithstanding its exercise in the case of Options and SARs. No adjustment will be made for a dividend or other right that is determined
based on a record date prior to the date the stock certificate is issued, except as otherwise
specifically provided for in this Plan.
24. No Employment Rights.
The Plan shall not confer upon any Participant any right to continue an employment, service or
consulting relationship with the Company, nor shall it affect in any way a Participant’s right or
the Company’s right to terminate the Participant’s employment, service, or consulting relationship
at any time, with or without Cause.
25. Termination, Rescission and Recapture.
(a) Each Award under the Plan is intended to align the Participant’s long-term interest with
those of the Company. If the Participant engages in certain activities discussed below, either
during employment or after employment with the Company terminates for any reason, the Participant
is acting contrary to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any outstanding, unexercised,
unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise, payment or delivery
pursuant to the Award (“Rescission”), or recapture any Common Stock (whether restricted or
unrestricted) or proceeds from the Participant’s sale of Shares issued pursuant to the Award
(“Recapture”), if the Participant does not comply with the conditions of subsections (b) and (c)
hereof (collectively, the “Conditions”).
(b) A Participant shall not, without the Company’s prior written authorization, disclose to
anyone outside the Company, or use in other than the Company’s business, any proprietary or
confidential information or material, as those or other similar terms are used in any applicable
patent, confidentiality, inventions, secrecy, or other agreement between the Participant and the
Company with regard to any such proprietary or confidential information or material.
(c) Pursuant to any agreement between the Participant and the Company with regard to
intellectual property (including but not limited to patents, trademarks, copyrights, trade secrets,
inventions, developments, improvements, proprietary information, confidential business and
personnel information), a Participant shall promptly disclose and assign to the Company or its
designee all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and interest in such
intellectual property in the United States and in any foreign country.
(d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to an Award, the
Participant shall certify on a form acceptable to the Company that he or she is in compliance with
the terms and conditions of the Plan and, if a severance of Continuous Service has occurred for any
reason, shall state the name and address of the Participant’s then-current employer or any entity
for which the Participant performs business services and the Participant’s title, and shall
identify any organization or business in which the Participant owns a greater-than-five-percent
equity interest.
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(e) If the Company determines, in its sole and absolute discretion, that (i) a Participant has
violated any of the Conditions or (ii) during his or her Continuous Service, or within one year
after its termination for any reason, a Participant (a) has rendered services to or otherwise
directly or indirectly engaged in or assisted, any organization or business that, in the judgment
of the Company in its sole and absolute discretion, is or is working to become competitive with the
Company; (b) has solicited any non-administrative employee of the Company to terminate employment
with the Company; or (c) has engaged in activities which are materially prejudicial to or in
conflict with the interests of the Company, including any breaches of fiduciary duty or the duty of
loyalty, then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant’s relevant Awards,
Shares, and the proceeds thereof.
(f) Within ten days after receiving notice from the Company of any such activity, the
Participant shall deliver to the Company the Shares acquired pursuant to the Award, or, if
Participant has sold the Shares, the gain realized, or payment received as a result of the
rescinded exercise, payment, or delivery; provided, that if the Participant returns Shares that the
Participant purchased pursuant to the exercise of an Option (or the gains realized from the sale of
such Common Stock), the Company shall promptly refund the exercise price, without earnings, that
the Participant paid for the Shares. Any payment by the Participant to the Company pursuant to this
Section 21 shall be made either in cash or by returning to the Company the number of Shares that
the Participant received in connection with the rescinded exercise, payment,
or delivery. It shall not be a basis for Termination, Rescission or Recapture if after
termination of a Participant’s Continuous Service, the Participant purchases, as an investment or
otherwise, stock or other securities of such an organization or business, so long as (i) such stock
or other securities are listed upon a recognized securities exchange or traded over-the-counter,
and (ii) such investment does not represent more than a five percent (5%) equity interest in the
organization or business.
(g) Notwithstanding the foregoing provisions of this Section, the Company has sole and
absolute discretion not to require Termination, Rescission and/or Recapture, and its determination
not to require Termination, Rescission and/or Recapture with respect to any particular act by a
particular Participant or Award shall not in any way reduce or eliminate the Company’s authority to
require Termination, Rescission and/or Recapture with respect to any other act or Participant or
Award. Nothing in this Section shall be construed to impose obligations on the Participant to
refrain from engaging in lawful competition with the Company after the termination of employment
that does not violate subsections (b) or (c) of this Section, other than any obligations that are
part of any separate agreement between the Company and the Participant or that arise under
applicable law.
(h) All administrative and discretionary authority given to the Company under this Section
shall be exercised by the most senior human resources executive of the Company or such other person
or committee (including without limitation the Committee) as the Committee may designate from time
to time.
(i) Notwithstanding any provision of this Section, if any provision of this Section is
determined to be unenforceable or invalid under any applicable law, such provision will be applied
to the maximum extent permitted by applicable law, and shall automatically be deemed amended in a
manner consistent with its objectives to the extent necessary to conform to any limitations
required under applicable law. Furthermore, if any provision of this Section is illegal under any
applicable law, such provision shall be null and void to the extent necessary to comply with
applicable law.
Notwithstanding the foregoing, but subject to any contrary terms set forth in any Award
Agreement, this Section shall not be applicable: (i) to any Participant who is not, on the Award
Date, an Employee of the Company or its Affiliates; and (ii) to any Participant from and after his
or her termination of Continuous Service after a Change in Control.
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COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
Appendix A: Definitions
As used in the Plan, the following definitions shall apply:
“Affiliate” means, with respect to any Person (as defined below), any other Person that
directly or indirectly controls or is controlled by or under common control with such Person. For
the purposes of this definition, “control,” when used with respect to any Person, means the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of such Person or the power to elect directors, whether through the ownership of voting
securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.
“Applicable Law” means the legal requirements relating to the administration of options and
share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock
exchange or automated quotation system rules or regulations, and the applicable laws of any other
country or jurisdiction where Awards are granted, as such laws, rules, regulations and requirements
shall be in place from time to time.
“Award” means any award made pursuant to the Plan, including awards made in the form of an
Option, an SAR, a Restricted Share, a Restricted Share Unit, an Unrestricted Share, a Deferred
Share Unit, and a Performance Award, or any combination thereof, whether alternative or cumulative,
authorized by and granted under this Plan.
“Award Agreement” means any written document setting forth the terms of an Award that has been
authorized by the Committee. The Committee shall determine the form or forms of documents to be
used, and may change them from time to time for any reason.
“Board” means the Board of Directors of the Company.
“Cause” for termination of a Participant’s Continuous Service will exist if the Participant is
terminated from employment or other service with the Company or an Affiliate for any of the
following reasons: (i) the Participant’s willful failure to substantially perform his or her duties
and responsibilities to the Company or deliberate violation of a material Company policy; (ii) the
Participant’s commission of any material act or acts of fraud, embezzlement, dishonesty, or other
willful misconduct; (iii) the Participant’s material unauthorized use or disclosure of any
proprietary information or trade secrets of the Company or any other party to whom the Participant
owes an obligation of nondisclosure as a result of his or her relationship with the Company; or
(iv) Participant’s willful and material breach of any of his or her obligations under any written
agreement or covenant with the Company.
The Committee shall in its discretion determine whether or not a Participant is being
terminated for Cause. The Committee’s determination shall, unless arbitrary and capricious, be
final and binding on the Participant, the Company, and all other affected persons. The foregoing
definition does not in any way limit
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the Company’s ability to terminate a Participant’s employment
or consulting relationship at any time, and the term “Company” will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.
“Change in Control” means any of the following:
(i) Acquisition of Controlling Interest. Any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 50% or more of the combined voting
power of the Company’s then outstanding securities. In applying the preceding sentence, (i)
securities acquired directly from the Company or its Affiliates by or for the Person shall not
be taken into account, and (ii) an agreement to vote securities shall be disregarded unless its
ultimate purpose is to cause what would otherwise be a Change in Control, as reasonably
determined by the Board.
(ii) Change in Board Control. During a consecutive 2-year period commencing after the date
of adoption of this Plan, individuals who constituted the Board at the beginning of the period
(or their approved replacements, as defined in the next sentence) cease for any reason to
constitute a majority of the Board. A new Director shall be considered an “approved replacement”
Director if his or her election (or nomination for election) was approved by a vote of at least
a majority of the Directors then still in office who either were Directors at the beginning of
the period or were themselves approved replacement Directors, but in either case excluding any
Director whose initial assumption of office occurred as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the Board.
(iii) Merger. The Company consummates a merger, or consolidation of the Company with any
other corporation unless: (a) the voting securities of the Company outstanding immediately
before the merger or consolidation would continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; and (b) no Person becomes the
Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company’s then outstanding securities.
(iv) Sale of Assets. The stockholders of the Company approve an agreement for the sale or
disposition by the Company of all, or substantially all, of the Company’s assets.
(v) Liquidation or Dissolution. The stockholders of the Company approve a plan or proposal
for liquidation or dissolution of the Company.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Committee” means one or more committees or subcommittees of the Board appointed by the Board
to administer the Plan in accordance with Section 4 above. With respect to any decision involving
an Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall
consist of two or more Directors of the Company who are “outside directors” within the meaning of
Section 162(m) of the
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Code. With respect to any decision relating to a Reporting Person, the
Committee shall consist of two or more Directors who are disinterested within the meaning of Rule
16b-3.
“Company” means Commerce Energy Group, Inc., a Delaware corporation; provided, however, that
in the event the Company reincorporates to another jurisdiction, all references to the term
“Company” shall refer to the Company in such new jurisdiction.
“Consultant” means any person, including an advisor, who is engaged by the Company or any
Affiliate to render services and is compensated for such services.
“Continuous Service” means the absence of any interruption or termination of service as an
Employee, Director, or Consultant. Continuous Service shall not be considered interrupted in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than 90 days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute, or unless provided
otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from
Director to advisory director or emeritus status; or (v) in the case of transfers between locations
of the Company or between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not constitute an
interruption of Continuous Service.
“Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.
“Director” means a member of the Board, or a member of the board of directors of an Affiliate.
“Disabled” means a condition under which a Participant —
(a) is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or
(b) is, by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than
12 months, received income replacement benefits for a period of not less than 3 months under an
accident or health plan covering employees of the Company.
“Eligible Person” means any Consultant, Director or Employee and includes non-Employees to
whom an offer of employment has been extended.
“Employee” means any person whom the Company or any Affiliate classifies as an employee
(including an officer) for employment tax purposes, whether or not that classification is correct.
The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute
“employment” of such Director by the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the closing
price of a Share on the New York Stock Exchange or the American Stock Exchange (collectively, the
“Exchange”), on the Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (ii) if such stock is
not traded on the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the last
sales price (if the stock is then listed as a
Commerce
Energy Group, Inc.
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National Market Issue under The Nasdaq National Market System) or (B) the mean between the
closing representative bid and asked prices (in all other cases) for the stock on the Determination
Date as reported by NASDAQ or such successor quotation system; or (iii) if such stock is not traded
on the Exchange or quoted on NASDAQ but is otherwise traded in the over-the-counter, the mean
between the representative bid and asked prices on the Determination Date; or (iv) if subsections
(i)-(iii) do not apply, the fair market value established in good faith by the Board.
“Grant Date” has the meaning set forth in Section 14 of the Plan.
“Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as designated in the
applicable Award Agreement.
“Involuntary Termination” means termination of a Participant’s Continuous Service under the
following circumstances occurring on or after a Change in Control: (i) termination without Cause by
the Company or an Affiliate or successor thereto, as appropriate; or (ii) voluntary termination by
the Participant within 60 days following (A) a material reduction in the Participant’s job
responsibilities, provided that neither a mere change in title alone nor reassignment to a
substantially similar position shall constitute a material reduction in job responsibilities; (B)
an involuntary relocation of the Participant’s work site to a facility or location more than 50
miles from the Participant’s principal work site at the time of the Change in Control; or (C) a
material reduction in Participant’s total compensation other than as part of an reduction by the
same percentage amount in the compensation of all other similarly-situated Employees, Directors or
Consultants.
“Non-ISO” means an Option not intended to qualify as an ISO, as designated in the applicable
Award Agreement.
“Option” means any stock option granted pursuant to Section 6 of the Plan.
“Participant” means any holder of one or more Awards, or the Shares issuable or issued upon
exercise of such Awards, under the Plan.
“Performance Awards” mean Performance Units and Performance Compensation Awards granted
pursuant to Section 10.
“Performance Compensation Awards” mean Awards granted pursuant to Section 10(b) of the Plan.
“Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan which may be
paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole
discretion shall determine.
“Person” means any natural person, association, trust, business trust, cooperative,
corporation, general partnership, joint venture, joint-stock company, limited partnership, limited
liability company, real estate investment trust, regulatory body, governmental agency or
instrumentality, unincorporated organization or organizational entity.
“Plan” means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.
“Reporting Person” means an officer, Director, or greater than ten percent shareholder of the
Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports
pursuant to Rule 16a-3 under the Exchange Act.
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“Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 8 of the
Plan.
“Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to
time, or any successor provision.
“SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7 of the Plan.
“Share” means a share of common stock of the Company, par value $0.001, as adjusted in
accordance with Section 13 of the Plan.
“Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company or any Affiliate.
“Unrestricted Shares” mean Shares awarded pursuant to Section 8 of the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax consequences relating
to awards granted under the 2006 Stock Incentive Plan. This discussion does not address all aspects
of U.S. federal income taxation, does not discuss state, local and foreign tax issues and does not
discuss considerations applicable to a holder who is, with respect to the United States, a
non-resident alien individual. This summary of federal income tax consequences does not purport to
be complete and is based upon interpretations of the existing laws, regulations and rulings which
could be altered materially with enactment of any new tax legislation.
Under the United States Internal Revenue Code (the “Code”), the Company will generally be
entitled to a deduction for federal income tax purposes at the same time and in the same amount as
the ordinary income that participants recognize pursuant to awards (subject to the participant’s
overall compensation being reasonable, and to the discussion below with respect to Code section
162(m)). For participants, the expected U.S. tax consequences of awards are as follows:
ISOs. ISOs may only be granted to employees and must be exercised while employed or within 3
months of the termination of employment (except in cases of death or disability). A participant
will not recognize income upon the grant of an ISO. There are generally no tax consequences to the
participant upon exercise of an ISO (except the amount by which the fair market value of the shares
at the time of exercise exceeds the option exercise price is a tax preference item possibly giving
rise to an alternative minimum tax). If the shares are not disposed of within two years from the
date the ISO was granted or within one year after the ISO was exercised, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital gain and any loss
will be characterized as long-term capital loss. If either of these holding period requirements are
not met, then a “disqualifying disposition” occurs and (a) the participant recognizes ordinary
income gain in the amount by which the fair market value of the shares at the time of exercise
exceeded the exercise price for the ISO and (b) any remaining amount realized on disposition
(except for certain “wash” sales, gifts or sales to related persons) will be characterized as
capital gain or loss.
If a participant pays the option exercise price of an ISO by the surrender of unrestricted
shares of Common Stock that he or she already owns, he or she will not recognize gain or loss on
the shares surrendered. A number of shares received equal to the number of shares surrendered will
have a basis equal
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Energy Group, Inc.
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to the basis of the shares surrendered, and the participant’s holding period of such shares
received will include the holding period of the shares surrendered. To the extent that the value
of the shares received exceeds the value of the shares surrendered, those shares received that
represent such excess in value will have a basis equal to zero and a holding period that will
commence on the day they are acquired. However, if a participant surrenders shares that were
acquired through the previous exercise of an ISO before the end of the requisite holding period,
the participant may recognize ordinary income on the surrender of those shares.
Options otherwise qualifying as ISOs will be treated as non-ISOs to the extent that the fair
market value of the shares with respect to which incentive stock options granted after 1986 are
exercisable for the first time by a participant during any calendar year (under all of the
Company’s plans and those of any of its subsidiaries) exceeds $100,000. This rule is applied by
taking the options into account in the order in which they are granted.
Non-ISOs. A participant will not recognize income at the time that a non-ISO is granted. At
the time a non-ISO is exercised, the participant will recognize ordinary income in an amount equal
to the excess of (a) the fair market value of the shares issued to the participant on the exercise
date over (b) the exercise price paid for the shares. At the time of sale of shares acquired
pursuant to the exercise of a non-ISO, the appreciation (or depreciation) in value of the shares
after the date of exercise will be treated either as short-term or long-term capital gain (or loss)
depending on how long the shares have been held.
If a participant pays the option price of a non-ISO in whole or in part by the surrender of
Common Stock that he or she already owns, he or she will not recognize gain or loss on the shares
surrendered. A number of shares received equal to the number of shares surrendered will have a tax
basis equal to the basis of the shares surrendered, and the participant’s holding period of such
shares received will include the holding period of the shares surrendered. To the extent that the
value of the shares received upon exercise exceeds the value of the shares surrendered, the excess
(reduced by the amount of any cash paid by the participant) will be ordinary income. Furthermore,
the shares received that represent such excess in value will have a basis equal to their fair
market value and a holding period that will commence on the day after they are acquired. However,
if the shares surrendered are considered substantially non-vested property within the meaning of
Section 83 of the Code, a Section 83(b) Election (as defined below) with respect to the shares has
not been made, and certain shares received upon exercise are considered substantially non-vested
property, the participant will generally recognize ordinary income in the year during which the
restrictions terminate on the shares received.
Share Appreciation Rights. A participant to whom a SAR is granted will not recognize income at
the time of grant of the SAR. Upon exercise of a SAR, the participant must recognize taxable
compensation income in an amount equal to the amount or cash received and the fair market value of
any shares that the participant receives.
Restricted Shares, Restricted Share Units, Deferred Share Units, Performance Awards, and
Unrestricted Shares. In general, a participant will not recognize income at the time of grant of
restricted shares, restricted share units, deferred share units, or performance awards, unless the
participant elects with respect to restricted shares or restricted share units to accelerate income
taxation to the date of the award pursuant to an election under Section 83(b) of the Code (a
“Section 83(b) Election”). In this event, a participant would recognize ordinary income equal to
the excess of the market value of the restricted shares over any amount the participant pays for
them (in which case subsequent gain or loss would be capital in nature). In the absence of an
election to accelerate income taxation to the date of an award, a participant must recognize
taxable compensation income equal to the value of any cash or unrestricted shares that the
participant receives. The same tax consequences apply to performance awards and awards of
unrestricted shares.
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Energy Group, Inc.
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Special Tax Provisions. Under certain circumstances, the accelerated vesting, cash-out or
accelerated lapse of restrictions on awards in connection with a change in control of the Company
might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions
of Code section 280G, and the participant may be subject to a 20% excise tax and the Company may be
denied a tax deduction. Furthermore, the Company may not be able to deduct the aggregate
compensation in excess of $1,000,000 attributable to awards that are not performance-based” within
the meaning of Code section 162(m) in certain circumstances. The 2005 Plan is designed to permit
certain awards that qualify as performance-based compensation for this purpose.
Special Rules Applicable to Insiders. In limited circumstances where the sale of Common Stock
received as a result of a grant or award could subject those participants who are directors or
officers of the Company subject to Section 16(b) of the Exchange Act (collectively, “Insiders”) to
a lawsuit under Section 16(b) of the Exchange Act, the tax consequences to the Insider may differ
from the tax consequences described above. In these circumstances, unless Section 83(b) Election
has been made, the principal difference (in cases where the Insider would otherwise be currently
taxed upon the participant’s receipt of the stock) usually will be to postpone valuation and
taxation of the stock received so long as the sale of the stock received could subject the Insider
to suit under Section 16(b) of the Exchange Act, but no longer than six months.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Securities and Exchange
Commission (the “Commission”) are incorporated herein by reference:
| • | The Company’s Annual Report on Form 10-K for the year ended July 31, 2005 filed with the Commission on October 31, 2005; | ||
| • | The Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2005 filed with the Commission on December 15, 2005; | ||
| • | The Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2006 filed with the Commission on March 16, 2006; | ||
| • | The Company’s amended Quarterly Report on Form 10-Q/A (Amendment No. 1) for the quarter ended October 31, 2004 filed with the Commission on October 31, 2005; | ||
| • | The Company’s amended Quarterly Report on Form 10-Q/A (Amendment No. 3) for the quarter ended January 31, 2005 filed with the Commission on October 31, 2005; | ||
| • | The Company’s amended Quarterly Report on Form 10-Q/A (Amendment No. 2) for the quarter ended April 30, 2005 filed with the Commission on October 31, 2005; | ||
| • | The Registrant’s Current Reports on Form 8-K, as filed with the Commission on August 2, 2005, August 5, 2005, August 30, 2005, September 30, 2005, October 13, 2005, October 31, 2005, November 14, 2005, November 17, 2005, November 23, 2005, December 2, 2005, December 6, 2005, December 8, 2005, December 15, 2005 (but specifically not incorporating by reference herein the Form 8-K filed on December 15, 2005 announcing the Company’s earnings for the quarter ended October 31, 2005), February 1, 2006, March 2, 2006 and April 18, 2006; | ||
| • | The Company’s amended Current Report on Form 8-K/A (Amendment No. 2) filed with the Commission on August 2, 2005; and | ||
| • | the description of the Common Stock, par value $.001 per share, of the Company and the common stock purchase rights, which is incorporated by reference into the Company’s registration statement on Form 8-A, filed with the Commission on July 6, 2004, pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and any amendment or report filed for the purpose of updating such description. |
Commerce
Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 28
2006 Stock Incentive Plan Prospectus
Page 28
In addition, all documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or which de-registers all securities
then remaining unsold, shall be deemed to be incorporated by reference into this Memorandum and to
be a part hereof from the date of filing of such documents with the Securities and Exchange
Commission.
Any statement contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Memorandum to the extent
that a statement contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a
part of this Memorandum.
USE OF PROCEEDS, TAX WITHHOLDING AND
NO LIENS
NO LIENS
Any proceeds that the Company receives from the sale of Common Stock pursuant to Awards will
be used for general corporate purposes. Employment and withholding taxes will apply to the income
arising from Awards. Participants will not be subject to any additional charges (other than
payment of the exercise price for Options) in connection with their Awards. Nor does the Plan
allow for any liens on any Awards, funds, or Common Stock that Participants hold or may receive
pursuant to the Plan.
ADDITIONAL INFORMATION
Additional information about the Plan and its administrators may be obtained from, and copies
of the following documents or reports will be furnished without charge upon written or oral request
to the Secretary, Commerce Energy Group, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; telephone number (▇▇▇) ▇▇▇-▇▇▇▇:
| • | Documents or reports incorporated by reference in this Memorandum (excluding exhibits to such documents or reports unless such exhibits are specifically incorporated by reference into such documents or reports); | ||
| • | The Company’s annual report to shareholders for the latest fiscal year; and | ||
| • | All reports, proxy statements and other communications distributed to the shareholders of the Company. |
All participants shall receive, if they do not otherwise receive such materials, copies of all
reports, proxy statements and other communications distributed to the Company’s security holders
generally. Such materials shall be delivered not later than the time at which they are sent to the
Company’s security holders.
EXHIBIT C
COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
2006 STOCK INCENTIVE PLAN
Section 83(b) Election Form
Attached is an Internal Revenue Code Section 83(b) Election Form. IF YOU WISH TO MAKE A SECTION
83(B) ELECTION, YOU MUST DO SO WITHIN 30 DAYS AFTER THE DATE THE RESTRICTED SHARES COVERED BY THE
ELECTION WERE TRANSFERRED TO YOU. In order to make the election, you must completely fill out the
attached form and file one copy with the Internal Revenue Service office where you file your tax
return. In addition, one copy of the statement also must be submitted with your income tax return
for the taxable year in which you make this election. Finally, you also must submit a copy of the
election form to the Company within 10 days after filing that election with the Internal Revenue
Service. A Section 83(b) election normally cannot be revoked.
COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
2006 STOCK INCENTIVE PLAN
Election to Include Value of Restricted Shares in Gross Income
in Year of Transfer Under Internal Revenue Code Section 83(b)
in Year of Transfer Under Internal Revenue Code Section 83(b)
Pursuant to Section 83(b) of the Internal Revenue Code, I hereby elect within 30 days after
receiving the property described herein to be taxed immediately on its value specified in item 5
below.
| 1. | My General Information: |
| Name: | ||||||
| Address: | ||||||
| S.S.N. | ||||||
| or T.I.N.: | ||||||
| 2. | Description of the property with respect to which I am making this election: |
shares of stock of Commerce Energy Group, Inc.
(the “Restricted Shares”).
| 3. | The Restricted Shares were transferred to me on ___, 20___. This election relates to the 20 calendar taxable year. |
| 4. | The Restricted Shares are subject to the following restrictions: |
The Restricted Shares are forfeitable until they is are earned in accordance with
Section 1 of the Commerce Energy Group, Inc. 2006 Stock Incentive Plan
(“Plan”) Restricted Shares Award Agreement (“Award Agreement”) or
other Award Agreement or Plan provisions. The Restricted Shares generally are not
transferable until my interest becomes vested and nonforfeitable, pursuant to the
Award Agreement and the Plan.
| 5. | Fair market value: |
The fair market value at the time of transfer (determined without regard to any
restrictions other than restrictions which by their terms never will lapse) of the
Restricted Shares with respect to which I am making this election is
$ per
share.
| 6. | Amount paid for Restricted Shares: |
The
amount I paid for the Restricted Shares is
$ ______ per share.
| 7. | Furnishing statement to employer: |
A copy of this statement has been furnished to my employer, . If the
transferor of the Restricted Shares is not my employer, that entity also has been
furnished with a copy of this statement.
| 8. | Award Agreement or Plan not affected: |
Nothing contained herein shall be held to change any of the terms or conditions of
the Award Agreement or the Plan.
Dated: ___, 20___. |
||
| Taxpayer |
EXHIBIT D
COMMERCE ENERGY GROUP, INC.
2006 STOCK INCENTIVE PLAN
2006 STOCK INCENTIVE PLAN
Designation of Beneficiary
In connection with Award Agreements between Commerce Energy Group, Inc. (the
“Company”) and ___, an individual residing at ___(the
“Recipient”), the Recipient hereby designates the person specified below as the beneficiary
of the Recipient’s interest in Awards as defined in the Company’s 2006 Stock Incentive Plan (the
“Plan”). This designation shall remain in effect until revoked in writing by the
Recipient.
| Name of Beneficiary: | ||||||
| Address: | ||||||
| Social Security No.: | ||||||
This beneficiary designation relates to any and all of Recipient’s rights under the following
Award or Awards:
| o | any Award that Recipient has received under the Plan. | |||
| o | the Award that Recipient received pursuant to an award agreement dated ___, ___between Recipient and the Company. |
The Recipient understands that this designation operates to entitle the above-named
beneficiary to the rights conferred by an Award from the date this form is delivered to the Company
until such date as this designation is revoked in writing by the Recipient, including by delivery
to the Company of a written designation of beneficiary executed by the Recipient on a later date.
| Date: | ||||||
| By: | ||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇ |
Sworn to before me this
___day of , 200_
Notary Public
County of
State of
___day of , 200_
Notary Public
County of
State of